The Sellout of America: Why Our Enemies are Thriving

The Russians are coming. No, T-72 tanks are not plowing through Poland headed for Paris. There is no need for that outdated Soviet doctrine. Not when Russia can patrol near our coastal waters and harvest our most strategic resource—petroleum.

While the Obama administration seems bent on banning offshore oil drilling on the outer continental shelf, Russia is filling the vacuum, building its energy wealth and stretching its strategic reach all the way to Cuba and the vast oil pools that lay inside the Gulf of Mexico.

The Kremlin’s aim to be the world’s dominant power hasn’t changed since the Soviets tried to smuggle first-strike nuclear warheads onto the island of Cuba. But unlike First Secretary Nikita Khrushchev, today’s supreme leader Vladimir Putin is not gunning to win the arms race. He is out to win the energy race. So far it has been no contest.

Last year marked a milestone for the United States. For the first time since World War II, we pumped less than 5 million barrels of oil per day. We pumped almost twice that much oil 30 years ago when Jimmy Carter was president.

While Carter handed over the Panama Canal, Obama’s mistakes will be far more devastating to the U.S.

“Over the last 25 years, opportunities to head off the current crisis were ignored, missed or deliberately blocked, according to analysts, politicians and veterans of the oil and automobile industries,” wrote The New York Times.

“What’s more, for all the surprise at just how high oil prices have climbed, and fears for the future, this is one crisis we were warned about. Ever since the oil shortages of the 1970s, one report after another has cautioned against America’s oil addiction.”

Yet the Obama administration has blindly ignored the warnings. The president continues to tout clean energy over offshore oil, even though seven out of 10 Americans want to drill for it.

Obama’s position on offshore drilling is as cloudy as the deep warm waters of the Gulf. As a senator he opposed it. As a candidate, Obama seemed to support it. But as president, Obama has stifled efforts to expand it.

This month The Washington Post said it now knows the president’s true intentions: “Hidden deep within the president’s budget proposal released on Feb. 1 are numbers that reveal his true intentions. The budget shows that revenues collected from new offshore leasing will decline over the next five years—from $1.5 billion in 2009, to only $413 million in fiscal 2015. If the president planned on expanding offshore drilling, revenues would be increasing, not decreasing. This budget clearly indicates that he has no intention of opening additional areas to drilling off our nation’s coast.”

Enter Russia—a nuclear mega power with a growing choke-hold on fossil fuel supplies. Last summer Russian Deputy Prime Minister Igor Sechin signed four contracts securing exploration rights in Cuba’s economic zone in the Gulf.

Havana says there may be 20 billion barrels of oil along its coast. That’s the total remaining conventional oil reserves of the U.S.

The Cuban deal will cement the Kremlin as the dominant petroleum power in the world. Russia already has three times more oil reserves than the U.S. Russia also has the largest natural gas reserves in the world—four times more than Canada and eight times more than Saudi Arabia.

“Vladimir Putin’s Russia is assembling an economic machine powerful enough to force Europe, the U.S. and Asia to their knees,” wrote The First Post. “It does not involve uranium, explosives or suicide bombers, but the natural resources that power the global economy. Russia will soon exert such sway over the supply of oil and natural gas that the OPEC crisis of the mid-1970s could seem trivial.”

Half of Russia’s state revenues and more than one-third its exports are derived from petroleum. Clearly Putin isn’t worried about cleaning up the environment (just one reason world carbon reduction agreements are useless and dangerous), but in projecting power. To that end Russia has surpassed Saudi Arabia as the world’s number one oil producer. The Kremlin also has its hands on the kill-switch to critical natural gas supply lines to Europe and Asia.

Meanwhile America’s dependence on oil is growing just as its availability is shrinking. The last time the U.S. produced such little oil Truman was President. And I can’t find one oilman in 100 that thinks the decline in American oil production is going to be arrested. As one Canadian oil company president said to me: “U.S. production in the lower 48 is falling into a black hole.”

What the Kremlin understands and what the White House doesn’t is that there is nothing on the horizon to replace petroleum. In fact, every four years, the U.S. consumes a cubic mile of oil. This has the energy equivalent of:

  • Four of the giant Three Gorges dams, cranking at full capacity for 50 years.
  • More than 30,000 1.65-megawatt wind turbines, cranking for 50 years.
  • A whopping 100,000 1-megawatt coal-fired electric plants, going full-bore for 50 years.
  • Fifty-two giant nuclear electric plants, running at 100 percent capacity for 50 years.

There aren’t in enough windmills or solar panels now or in 20 years from now that will significantly offset this demand.

What It Means
America is headed for an unmitigated disaster. Russia is bent on becoming the dominant petro-power of the world. Putin has gone so far as to say his country is an “energy superpower” and he has repeatedly demonstrated he will use his nation’s growing energy wealth as a blunt instrument of Kremlin foreign policy.

While Obama fetters away opportunities to drill for more oil, Putin is busy outflanking America on all sides. Russia is busy building closer relations with Iran and Pakistan, America’s key enemy and ally on the War on Terror. And in our own hemisphere Putin is about to meet with Venezuelan President and Uncle Sam hater, Hugo Chavez.

As for Cuba and its oil, it is just the latest energy domino to fall. There will be many more as Russia aims to dominate America, not with armies but with oil.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Why Wall Street Hates Gold

Wall Street hates gold. In fact they hate it as much as government does.

The reason is simple: ordinary investors that count on gold don’t need Wall Street. They don’t need the slick stockbrokers, the puffed-up analysts or the aristocratic money managers. In the eyes of Wall Street gold owners didn’t contribute a red cent to the $20-plus billion in bonuses they got last year.

Twenty-billion dollars might seem like a mega-lottery, but Wall Street always wants more. Bonuses were bigger last year than the year before even though Wall Street almost hurtled the world into an economic dark age.

But Wall Street is scared. They understand they are living it up because of the Barack Obama Bonus Brigade.* Most of all they fear sanity just might be contagious; that more and more investors will be reluctant to throw their hard-earned savings into a marketplace that is overpriced and on the verge of collapse.

Little wonder that CNBC, The Wall Street Journal and the rest of the financial media hammer away at gold. They reiterate the Keynesian mantra that it is a barbarous relic and call it a vastly overpriced commodity whose bubble is about to burst.

“Talk of a Gold bubble over the past 6-9 months grows louder and louder,” writes The Market Oracle. “It is comical and a sign of desperation among those losing their grip on the levers of power and influence. I have never seen a bubble so heavily recognized and announced.”

It does seem strange that today Wall Street is clairvoyant about the billions of dollars invested in the gold market, even though a couple of years ago it was oblivious to the trillions of dollars at risk in the sub-prime lending market.

Of course gold-bashing is nothing new. I saw it when I was a kid and watched my dad, C.V., on the TV show Wall Street Week. It was 1976 and gold was trading for a little more than $100 per ounce. That didn’t stop the host, Louis Rukeyser from calling my dad a gold bug and ridiculing him for telling his subscribers to buy bullion.

But Rukeyser and the rest of the Wall Street establishment weren’t laughing near so hard four years later when the Dow Jones Industrial Average was trading at 800 while gold was fetching $800.

Dirt Cheap, But Not for Long
The last time gold was frothy you could swap an ounce of bullion for a single share in the Dow Jones Industrial Average. Today it takes about 10 ounces of gold to buy a single share in the Dow.

But just how expensive is gold these days? It turns out that no matter how you measure it, gold is cheap. The reason is because the dollar buys so little. Back in 1980 when I was graduating from college I sold 10 Krugerrands and bought myself a shiny new Pontiac Trans Am right off the showroom floor. Today I would need 30 Krugerrands to buy a comparable Chevy Camaro.

In fact, if you account for the dollar’s decline in purchasing power, bullion would trade today at nearly $2,500 to have the same value it had in 1980. And even if you think gold only spiked above $800 per ounce, and a much fairer top is $700, it would still have to trade at $2,000 in today’s money just to have the same relative value.

Finally, bubbles usually burst because of inflated supply and falling demand. Not much sign of that in the gold market.

According to a recently released report by The World Gold Council, overall investment in gold was 7 percent higher last year than in 2008. It seems incredible, but gold demand actually climbed despite rampant fears of deflation and a physical shortage of gold. Moreover, in 2009 total funds invested in all forms of gold were a whopping 20 percent higher than in 2008.

Yet even as demand for the Midas metal continues to grow, production isn’t keeping pace. Output of gold from South Africa, the United States, Australia and Canada has dwindled every year over the past decade.

These countries, which produced two-thirds of global gold production through the 1980s, now produce less than half of the gold mined.

Over the past decade big gold companies have grown not through exploration but via the purchase of reserves in the form of corporate buyouts. The truth is it is getting harder and more expensive to find gold.

“In all of history, only 161,000 tons of gold have been mined, barely enough to fill two Olympic-size swimming pools,” wrote National Geographic in January 2009. “Now the world’s richest deposits are fast being depleted, and new discoveries are rare. Gone are the hundred-mile-long gold reefs in South Africa or cherry-size nuggets in California. Most of the gold left to mine exists as traces buried in remote and fragile corners of the globe.”

When I was born some 50 years ago companies could get about 12 grams of gold for every ton of rock you pulled out of a mine. Today they have to mine four tons of rock to harvest that much gold.

So there doesn’t appear to be enough gold to satisfy demand, at least not at these prices. But there certainly has been an avalanche of money. Consider this: in the past half century the above ground levels of gold have doubled. Meanwhile M3, a broad measure of money, has risen from $300 billion to $10 trillion. In other words, there is twice the amount of gold as there was in 1960. But there are 30 times more dollars.

All of which leads me to think that Wall Street has it picture perfect once again; perfectly wrong. The real bubble is with paper assets. The only silver lining in any of it is that it will blow Wall Street to smithereens—right where it belongs.

Action to take: continue to accumulate gold. I’ve been telling subscribers this since October 2000 when I was writing Outstanding Investments. My stockbroker friends thought I was dead wrong then. They think I am dead wrong now. I’ve been getting a lot of last laughs and I expect to get a lot more.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

* Footnote: Last month New York State Comptroller Thomas DiNapoli admitted that Washington was responsible for lining Wall Street’s pockets with billions even as the rest of the country was mired in recession. “A lot of this (bonuses) is fueled by federal money,” DiNapoli said.

The Ides of March: What Obama’s Woes Will Do to Gold

“Sic semper tyrannis” (Thus always to tyrants). —Brutus, during the assassination of Julius Caesar.

In Shakespeare’s Julius Caesar, a soothsayer warns Caesar to “beware the Ides of March.” The warning did nothing to help Caesar, who was stabbed to death on the Senate floor. The principal conspirator against Caesar was Marcus Junius Brutus, Caesar’s most trusted ally.

Fast forward two millennia and we see another great empire is in trouble, and so, too, its leader.

Thankfully, democratic rulers aren’t murdered, they are voted out of office. Yet this President has almost three more years left in office, plenty of time to do more economic damage for a country and to lose every shred of confidence in a man once hailed as a visionary and a redeemer; the exact qualities that were bestowed upon Julius Caesar.

Caesar came to political prominence in 67 B.C. when he was elected to the Roman Senate. Over the next two decades he would become one of the most renowned of all generals. Eighteen years later he established himself as the sole dictator of the Roman Empire.

Caesar declared himself a man of the people and in 46 B.C. drafted a public letter outlining his goals. They included: “tranquility for Italy, peace for the provinces, and security for the Empire.”

History has declared Caesar did not have the time or means to complete his overly ambitious agenda which included resolving foreign conflicts, strengthening the middle class and resolving the debt crisis. It sounds all too familiar, with the exception that I find nothing about Caesar instituting Roman healthcare.

Historians do point out that Caesar’s goals and methods of governing alienated many of the nobles. For a time, that did not stop Caesar’s lackeys in the Senate from constantly voting him new honors. Unfortunately for Caesar, the Nobel Prize was not one of them, as it was created some 2,000 years later.

On March 15, 44 B.C., Caesar attended his last meeting. He ignored a warning and went to the Senate. Sixty conspirators, most of them Senators who had lost faith in his vision for rebuilding Rome, were waiting for him with concealed daggers. He was stabbed 23 times.

March Madness
What exactly the House and Senate will do to Mr. Obama’s grand plans remains to be seen. But one thing is certain: Mr. Obama has faced a winter of discontent.

According to a survey done by Rasmussen in March, only one in four Americans think the country is heading in the right direction. Other surveys this month show expectations for the nation’s short- and long-term economic future are gloomier than they have been at any time since President Obama took office.

Still, Obama supporters continue to harp on some silver linings among the dark economic clouds. Earlier this month, Senate Majority Leader Harry Reid (D-Nev.) called the latest job numbers proof that the economic recovery is underway, even though the unemployment rate is a whopping 9.7 percent and the true jobless number is close to double that.

“Today is a big day in America,” said Reid earlier this month. “Only 36,000 people lost their jobs today; which is really good.”

Reid seems like the kind of cheerleader the Titantic could have used: “Good news passengers! The ship isn’t sinking as fast as we feared!”

I suspect that Reid and other Obama loyalists will find that most Americans think such talk cheap. In the second half of March, 2010, The Fates may have already determined the President’s plight. The big question is: who will deliver the blow and what will be the result?

Bernanke Obama’s Brutus
In March Federal Reserve Chairman Ben Bernanke promised to end Quantitative Easing (a fancy term for stimulating the economy and funding deficits by running the printing presses). Some think that the Fed Chairman only wants to ensure his Senate reconfirmation. Others think it is a real commitment; that Bernanke is more loyal to the dollar than the President.

I don’t blame you if you are skeptical about Bernanke. Still, there is precedent for the Fed to put the country first. It happened in 1979 when President Carter appointed Paul Volcker as chairman of the Federal Reserve.

The economy then was much as it is now. Unemployment was soaring, confidence was disappearing and the dollar was in crisis. Yet Volcker put the nation first and the presidency second. He raised interest rates through the roof purposefully putting America into a terrible recession.

Volcker’s actions eventually saved the American economy and cost Jimmy Carter his bid to be reelected. But it was tough sledding. The Fed funds rate, which had averaged 11.2 percent in 1979, was raised by Volcker to a peak of 20 percent in June 1981. That same year inflation topped out at 13.5 percent, a fundamental which drove the price of gold from $280 per ounce when Volker was appointed to $850 per ounce just 18 months later.

Yet I am dubious that Bernanke will betray Obama. The Fed chairman seems much more like Arthur Burns than Paul Volcker.

Richard Nixon hurt the dollar primarily because he removed any link between the dollar and gold. After 1971 not even countries could exchange greenbacks for bullion. That gave Nixon, and all later presidents, the freedom to spend away. Because the dollar was the world’s international reserve currency, Washington basically believed that other countries had to like it or lump it.

Arthur Burns came along when it was still expected for the Fed to carry out its primary mission—to protect the integrity of the dollar. Instead, Burns acquiesced to Nixon’s war on poverty, the war in Vietnam and bid for reelection in 1972. It was a cavalcade of spending that carried on throughout the decade of the ‘70s.

“After finally winning the presidential election of 1968, Nixon named Burns to the Fed chairmanship in 1970 with instructions to ensure easy access to credit when Nixon was running for reelection in 1972,” wrote Mercury Rising.

“Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed’s influence, Burns and other Governors succumbed. Inflation resulted.”

According to American Thinker, it matters not if Bernanke is loyal to the President like Burns, or the dollar like Volcker; either way he “will be Obama’s Brutus.”

That is because like Rome, America is a weakened empire with no easy choices. Two trillion dollars that the Federal government needs this year underscores this truth.

Where such funds will come from remains very much in question. Foreigners are having second thoughts about financing America’s deficit, and China—the largest owner of Treasuries—has become a net seller of Uncle Sam bonds.

Very soon Treasury yields will have to rise to get the world to continue to finance Washington’s spending spree. So whether or not Bernanke wants it, or even likes it, interest rates are heading higher. That is bad news for the economy and for President Obama who will almost certainly not be re-elected.

Rising rates are, however, good news for the nation for bullion investors. Rising rates ensure falling stock and bond prices and a rush to gold. It happened during the Carter administration and it has already begun during Obama’s term.

Action to take: Sell all bond instruments and Big Board stocks and use the funds to buy bullion, either in physical form or blue-chip gold mining stocks.

As Shakespeare’s soothsayer warned, “Beware the ides of March.”

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Obama’s Real Agenda and Why the Stimulus is Money Well Spent

Last month marked the one-year anniversary of the stimulus bill, or the American Reinvestment and Recovery Act, passing into law.

It was to cost a whopping $787 billion. True to form it has actually cost more, some $862 billion.

The question remains: did it work, or at least did it work well enough to seed recovery? The Federal Reserve doesn’t believe it did.

According to the Globe & Mail, “We have an economic recovery that (Fed Chairman) Mr. Bernanke does not believe is self-sustaining.”

Then again, how could Bernanke think otherwise? Consider that:

  • The United States dollar continues to break down against other currencies while gold is near its all-time high. Meanwhile, prices for raw materials jumped 50 percent last year, more than doubling the advance in the S&P 500. That was their best year since 1971.
  • Mortgage applications for new homes are down 13 percent from last year and were down 30 percent the year before. This despite record low interest rates and housing prices that are cheaper than they have been in a generation.
  • Even with Soviet-style financing, many banks’ balance sheets remain weak. More than 140 banks failed last year. The potential exists for hundreds, perhaps even thousands of more banks to fail over the next two years.
  • U.S. unemployment is running at 9.7 percent and the true unemployment rate is more than double if you count those who have given up looking for work and the underemployed. According to The Atlantic that is the highest unemployment rate since the 1930s.

The only good news is that personal spending grew faster than expected in January by 0.5 percent—the fourth consecutive monthly rise. Wait… wasn’t it too much spending that got us in trouble in the first place?

Of course it was, but Americans are not spending frivolously says Keith Hembre, chief economist with First American Funds in Minneapolis. “This is not a credit binge. Bank loans continue to contract.”

According to Hembre, Americans are pulling cash out of their savings accounts just to get by.

But wait, our government has a solution. If you said more spending you are not clairvoyant, just cognizant.

Most of the Democrats simply can’t wait to spend enough to make the nation prosperous once again. Last summer, Nobel prize winner and liberal lapdog Paul Krugman was arguing that the country was in desperate need of another stimulus package.

“Getting another round of stimulus will be difficult. But it’s essential,” wrote Krugman. And if we don’t? Well Krugman and plenty in the Obama administration are ready to slam the Great Depression horn; that blaring siren that screams of soup lines, dust bowls and hobos.

Last year Christina Romer, the chairwoman of the Council of Economic Advisers, published an article on the “lessons of 1937.” That was the year that Franklin Delano Roosevelt started deficit spending in earnest.

There is a chorus from the Left that screams we need another stimulus package or we face Hell—an economic condition so severe that old-timers will recall the Great Depression with fondness.

One might argue that the Obama plan really hasn’t been given a chance. Heck, a trillion dollars here or there isn’t really enough to test a theory, is it?

On the other hand one might say that Obama’s plan has worked perfectly. Not because it has improved the economy, but because it accomplished exactly what it set out to do—to make the Federal government even fatter, greasier and more bloated than it was before. If that is the case then call it Mission Accomplished!

If you think I am crazy consider this: last year former labor secretary Robert Reich wrote on his blog that the recovery might have to rise from ashes like the Phoenix. Riech’s argument is that there can be no recovery until we find an entirely new model for the economy. He didn’t spell out what that model will be, but you can bet one thing—Big Government is a big part of it.

Ron Paul probably sums it up best: “The administration also claims that thousands of jobs have been created or saved by this massive spending bill, but these are just more government jobs, and counterproductive in the long run. Funding for the public sector necessarily comes at the expense of an overtaxed private economy… But the more the burden, the closer the government parasite comes to killing its host.” (You can read all of Dr. Paul’s comments in Whiskey and Gunpowder by clicking here.).

You can’t deny that the federal government is not only more indebted, but also bigger than ever. Last month The Washington Times wrote: “The era of big government has returned with a vengeance, in the form of the largest federal work force in modern history.”

According to the Obama administration the government will employ 2,150,000 employees this year, thousands more than when President Clinton declared that “the era of big government is over” in the 1990s. The growth is not coming to our overstressed military, but in the form of thousands of new civilian jobs.

I didn’t graduate from an Ivy League school like many in the Obama administration and I don’t even know who this year’s nominees are for the Nobel Prize, or even if they have nominees. But I do know that it’s named for Alfred Nobel—the guy who invented dynamite—and that is exactly what the Obama administration is playing with in trying to spend us toward prosperity.

Every government that has tried socialism has suffered for it.

I saw all I needed to see of it growing up in Canada. In the late 1960s Pierre Elliott Trudeau became Prime Minister. His Liberal government seeded socialism for 16 years.

Trudeau was convinced of the superiority of a socialist planned economy over free enterprise. He wrote in 1957, “As far as I go, it seems evident to me that the regime of free enterprise has shown itself incapable of adequately resolving problems posed in education, health, housing, full employment, etc.”

He made his vision a reality, instituting huge deficit spending, a massive welfare class and socialized medicine. And he damn near destroyed the Canadian dollar.

When Trudeau took office in 1968 the Canadian dollar was selling at par with its U.S. counterpart. By the time Trudeau left office in 1984 the Canadian dollar was selling for 70 cents U.S. That was the Canadian dollar’s first marked decline in 100 years! During the 16 years that Trudeau was Prime Minister the Canadian dollar lost more than half of its purchasing power.

Consider what would have happened to two Canadians: one who put $10,000 Canadian cash into his mattress and the other who bought gold in April 1968 when Trudeau was first elected. By June 1984, when Trudeau left office, the investor with the cash would have had the equivalent of $2,350 in constant 1968 dollars. Meanwhile our gold bug would have had $36,000—or 15 times more—in constant 1968 dollars.

If Obama’s vision of government is successful I have no doubt that the results will be even worse for the dollar and better for gold investors. It is ironic, but big creditors like China and Russia, who know better than anyone the ills of socialism, are selling off dollars and buying up resources.

They understand what Milton Friedman meant when he said: “If you put the Federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Commander in Chief?

“The United States needs a Commander in Chief not a professor of law.” –Sarah Palin.

I hate to be a stickler for presidential definitions especially after Bill Clinton said: “It depends on what the meaning of the word ‘is’ is.” But given President Obama’s woeful performance as America’s Commander in Chief, I think he needs to be educated on the meaning of war.

After all, it was Mr. Obama that said “We are at war,” earlier this year at a White House state dinner.

Yet it is clear that Mr. Obama may not understand what war really means. He is certainly not cut from the same cloth as Ike, nor does he have the fortitude of Reagan.

How do I know? Well the Obama administration openly talks with our adversaries; has terminated the F-22 air-superiority aircraft and has shown a fierce commitment to cutting America’s nuclear arsenal even as impending super-power—China—rises in the east.

A recent issue of Foreign Affairs warns that the world is becoming a more dangerous place. According to the magazine, America’s enemies see war far differently than the President does. “The United States’ overseas conflicts are limited wars only from the U.S. perspective; to adversaries, they are essential. It should not be surprising if they use every weapon at their disposal to stave off total defeat.”

All the while our President is muddling through the wars in Iraq and Afghanistan. In his State of the Union Address Mr. Obama barely made a mention of the Afghan conflict which will involve 100,000 U.S. troops in a war that has persisted for eight years.

Worst of all, the President is undermining morale in our military by putting the enemy on trial and allowing gays to serve openly in the military.

The President and his advisers have become adamant in trying Khalid Sheikh Mohammed and four fellow Guantanamo Bay detainees in New York.

With resistance building over plans to try the accused Sept. 11 mastermind in a civilian court in New York, White House officials are lobbying lawmakers to secure funding.

Thankfully there is opposition. A bipartisan group in Congress is pushing to cut off funding to prosecute Mohammed and other 9-11 co-conspirators in civilian courts.

It is hard to believe if Mr. Obama understands the nature of war when the enemy is afforded a trial and the rights provided within the Constitution of the very nation they are trying to destroy. Imagine if President Truman had put Tojo on trial in Honolulu for planning the attack on Pearl Harbor.

Andrew C. McCarthy believes it is ridiculous to try an enemy and thus provide them with the comforts and rights therein.

“A war is a war,” declared McCarthy. “A war is not a crime, and you don’t bring your enemies to a courthouse.”

McCarthy knows a thing or two about trying terrorists. Fifteen years ago he was front and center in the nation’s biggest terrorism trial as the chief prosecutor against a group led by a blind Egyptian sheik that plotted to blow-up the United Nations, as well as the Lincoln and Holland Tunnels.

The Trouble With Gays in the Military
Recently, President Obama renewed his commitment to allow gays to openly serve in the U.S. military. As a result, Senator Joe Lieberman (I-Conn.) has emerged as the Senate champion for trying to scrap limits on gay and lesbian service in the military.
 
Last week Lieberman announced that he would introduce a bill to repeal the ‘Don’t-Ask-Don’t-Tell’ policy that became law in 1993.

Lieberman said: “To exclude one group of Americans from serving in the armed forces is contrary to our fundamental principles as outlined in the Declaration of Independence, and weakens our defenses…”

Not so fast Joe. There are good reasons for keeping gays out of the military, the least of which isn’t combat effectiveness.

A decade ago one of my best friends, a Gulf War veteran and now a major in the National Guard explained it to me when I questioned him on the subject.

“Keeping gays out of combat has nothing to do with sex,” said my friend who served as an U.S. Army infantry captain in Operation Desert Storm. “It has to do with love.”

He explained that leading men, whether it be a squad, a platoon or a company, meant making tough decisions; decisions that put the men under one’s command in grave danger. Such orders are not easily given under the best of circumstances but are undertaken with the knowledge that what is tantamount is the success of a mission.

My friend—who by the way is a true-blue Democrat—went on to explain that he thought gays in the military would lead to relationships in the field; the kind of relationships that would endanger a mission and compromise the lives of men undertaking them.

To underscore his point my friend the Major asked: “Would you order the love of your life into a dangerous undertaking, even if you knew they were the best person for the job?”

As the 2008 Republican Party Platform correctly stated: "Military priorities and mission must determine personnel policies. Esprit and cohesion are necessary for military effectiveness and success on the battlefield.”

For Mr. Obama not to understand this combat necessity puts into question whether he has a fundamental understanding of the nature of war; enough to be our Commander in Chief.

I am not saying that one must have combat experience to be President. What I am saying is that a good President puts the nation ahead of what he thinks is good politics or what is politically correct.

John Stuart Mill was a 19th Century philosopher, economist and academic. Yet he understood the nature of war.

“War is an ugly thing, but not the ugliest of things,” said Mill. “The decayed and degraded state of moral and patriotic feeling which thinks that nothing is worth war is much worse. The person who has nothing for which he is willing to fight, nothing which is more important than his own personal safety, is a miserable creature and has no chance of being free unless made and kept so by the exertions of better men than himself.”

Other words about war that Mr. Obama might want to heed come from the former First Lady Barbara Bush: “War is not nice.”

Neither is it nice sitting back and watching the decline of the U.S. through weak leadership. This is especially true when it not only makes America more vulnerable to our enemies, but also accelerates our economic decline.

You may be asking, “What does any of this have to do with my financial future?” I am glad you inquired.

The U.S. dollar has been the reserve currency of the world for more than half a century. It gained this status not only because of the financial vitality of America but because the U.S. was the ultimate protector against tyranny.

But today America’s precarious economic situation, as well as the serious lack of leadership from its highest office, will only serve to weaken an already crumbling currency.

Action to take: Continue to accumulate hard assets, most important of which is physical gold, silver and platinum.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Why Wall Street Can’t See It

Youth is everywhere. The Barack Obama administration is packed with young academics. Big corporations enlist young people the way an army conducts a draft. Yet the greatest danger to your pocketbook and overall prosperity is the youth that invests America’s money.

According to Money Magazine, the average age of a stock fund manager is a tad over 30. Now that I am in my 50s that makes me more than a little alarmed. I remember when I was young; when I was a dumb college kid.          

Years ago disaster stalked me. At the time I was in my 20s, unaware of calamity until it was sprung upon me.

My dad and I motored towards the extreme end of Idaho’s Lake Coeur d’Alene.

After several arm-aching pulls on the starter cord we had the trolling engine sputtering along. We traced the outlines of the pristine bays and points along the southern shores.

It was a lazy afternoon; the calm before the storm. Over the rhythmic cough and choke of the outboard, from a distance of at least half a mile, I heard a squirrel skipping through the turquoise pines. How strange, I thought. I glanced towards shore and noticed an absolute deadness to the lake—a motionless mass of water stretching out like a giant sheet of stainless steel.

Above the tree-line I saw a monster: colossal cumulus black clouds—swirling and spinning—compressed upon the forest hills. Within this charcoal mass was a tiny grey vortex, tipped to its side, spinning downward, as if to reach out and pull us in.

Now my father was the calmest man I’ve ever known. In fact I had never seen him excited by Mother Nature, an amazing accomplishment for a man who spent most of his life on the brutal Canadian prairies. But this day was different.

As I pointed my finger towards the horizon the old man jumped to his feet and shoved a cigarette in his mouth.

I should have been on notice. The old man never swore and he never, ever panicked. But he was cursing like a sailor and tossing gear about as though we had just been called to general quarters. Before I could manage to reel in the second line, our cabin-cruiser was up and running.

“Our best out is to outrun this,” yelled the old man above the roar of the V-8.

Moments later the rain and wind pounced on the cove we had just evacuated.

After another 20 minutes the storm was closing fast. Across the lake stretched a line. It was surreal—on one side tranquility; on the other, chaos.

Dad yelled, “Get the lifejackets!”

Now that concerned me. The old man wasn’t a life jacket kind of guy. He had never so much as worn a seatbelt.

As I jumped below deck I remembered that I had forgotten to transfer the life jackets into the new boat (remember… dumb college kid).

As I stumbled up to tell the old man about the jackets the storm had closed to within a hundred yards of us. I was shocked by its enormity. The waves were huge. Only half home and we were about to be engulfed by a typhoon.

“Where are the jackets?”

I had to say something, so I lied. “I can’t find them.”

I will never forget the look on his face. It was a combination of rage and terror. For a moment, I didn’t know what to fear more—the old man or the storm.

“You idiot,” he screamed. “You can’t find them because you didn’t pack’em!”
 
By this time the storm had closed to within yards of us. For a few seconds it engulfed only our stern, turning the boat into a gigantic surfboard. Then it grabbed us whole.

All hell broke loose. A tremendous wave crashed over our starboard. Inside the cabin, dishes and groceries flew across the galley. We began taking on water.

Dad switched on the sump-pump, but the up-swell was beyond its capacity. The lake opened up into a giant trough.

I couldn’t help but notice that the boat was lower. Inside the cabin there was water.

Then it hit me: we had no life raft, no life jackets, not even a two-way radio. We were trapped in this damn boat. If it sank, so would we! We were 20 minutes from the marina. I didn’t know if we could make it, and there wasn’t a thing I could do about any of it.

Then, through the grace of God, the storm began to dissipate. By the skin of our teeth we reached the marina.

Others weren’t so lucky. We saw a 21-foot ski boat sink just outside the marina. Later an old timer told us that it was the worst storm he had seen in 60 years.

Two things still stick in my mind: The utter calm before the storm, and my idiotic complacency, even after its approach.

My fear is we face another financial storm, this one from a tsunami of dollars that have been created by the Federal Reserve and the Treasury Department.

Yet that has created a perfect storm for rampant inflation.

Over the past year the Obama administration and Wall Street have been urging banks to increase lending. However the banks have not yet lent out much of the new reserves that the Fed has created. Rather they have left these reserves on deposit.

That means that the velocity of all this new money (how fast it changes hands) has been slow. But that will change as soon as the banks begin lending in earnest which will likely happen this year.

It is little wonder, then, that Reuters reported last week that, “the ultra-rich are increasingly buying copper, nickel and other physical commodities to shield themselves from paper-money inflation.”

According to Ronald Wildmann, who manages three Basinvest funds from Zurich: "As a wealthy person, the worst that can happen to you is not that your relationship manager gives you bad advice. What is much more worrisome is when you wake up in the morning and you look out the window and paper money is worthless."

Wildmann is in his late 40s and is one of the few money managers that even sees the potential for an inflationary storm. The majority of fund mangers are a generation younger and so busy fishing for profits that they haven’t even looked towards the horizon.

But a financial squall is approaching just as surely as that lake storm struck my dad and me three decades ago. When it does, Big Board stocks and blue chip bonds will collapse. At the same time fortunes will be made in hard assets, especially gold and silver.

Action to take: I urge you to divest out of paper in all but the most special situations and buy shares in either blue chip gold and energy companies or physical precious metals.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Banker, Butcher, Spy: Who Our Government Bullies And Bribes to Make This Their Cashless Society

It was the girl with the dark hair. For a few seconds Winston was too paralyzed to move. Whether she was really an agent of the Thought Police, or simply an amateur spy actuated by officiousness, hardly mattered. It was enough that she was watching him.”
George Orwell, 1984

With just days to go and a congressional recess looming, lawmakers are scrambling to find a legislative solution to re-up government surveillance and intelligence-gathering powers that are expiring at the end of the month.

With national security shaping up to be a major issue this election cycle, both sides are under intense pressure to reauthorize three expiring provisions of the USA PATRIOT Act.

Already Senate Democratic leaders are moving toward including a one-year extension on the provisions in their jobs bill, which was expected to be introduced this week.

No one doubts that the world changed for the worse since 9/11. One way has been our own government’s suspicion and surveillance of the very people that elected it.

Of course Washington has been telling us for a decade that it has no choice, that it must spy on us for our own good. It is all part of the War on Terror.

It is worth noting that our government began spying on us in earnest a generation earlier. That time it was because of the War on Drugs.

* * * * 

It was a hot July day in 1990 and I needed a cold drink. The offices to the Myers’ newsletter were on the second floor the Old National Bank Building at the North Division Y on Division Street in Spokane, Wash. One of the perks of paying hefty rent in the new building was that the bank let us use their lunch room replete with cola and snack machines.

Moments after my quarters had plunked into the machine I had a cold can of Coca-Cola in my hands. On the way out of the lunch room I noticed a giant poster on the wall from the Department of the Treasury (see chart below).

Click on the image above to expand the view.

As you can see its pretense is to catch criminals involved in “narcotics trafficking.” See the mention on the bottom? It offers “substantial rewards for information leading to the seizure of currency and/or the arrest and conviction of individuals violating United States currency laws.”

In other words, beware of the kindly bank teller if you deal in cash for whatever reason. He or she has openly been bribed to spy for the Treasury Department, the Internal Revenue Department (IRS) and U.S. Customs to boot.

You can see that more than a decade before 9/11 our government was busying itself in spying on its citizens. And the biggest attack on our liberty isn’t on what kind of gun we can own, where we can smoke, or even what we search out on the Internet. It is the slow and insidious control of our currency. How much money we have, where we have it and how we move it has become a preoccupation of the Federal Government.

There was a time when there were $1,000 bills. That is no longer. A rapidly devaluing hundred dollar bill is the biggest unit of currency today (in 2010 a $100 bill has the purchasing power of a 1975 $20 bill).

Twenty five years ago you could buy and own U.S. Treasury bearer bonds. Unregistered, they avoided scores of red tape—they could be bought and sold literally overnight; or if necessary, kept in safe keeping away from prying eyes. They too are extinct.

There was a time when you could move money in and out of the country, no questions asked. You can’t do that anymore. For years anything over $10,000 going across the border must be reported.

Uncle Sam wants to know any transaction over $10,000. That law doesn’t just apply to banks or border agents. If you go into your Ford dealer tomorrow and plunk down $12,000 cash, it will be reported to the Feds. Not only that, but if you spend more than $10,000 cash at a car dealership within a year (bought two cars on two different occasions for $6,000 each), the dealer is responsible to report the total of both transactions. In effect, private business has been conscripted by the Federal Government to report on its customers. And the Federal Government’s heavy hand reaches beyond U.S. borders.

In the late 1990s I was driving from my home in Spokane to Calgary, Canada. At that time it was illegal to transport more than $10,000 currency out of the United States, but Canada had no such laws (that would come a few years later, no doubt under pressure from Washington). At the Kings Gate border in British Columbia the Canadian Customs Agent asked if I was carrying more than $10,000 cash.

“What do you care?” I asked.

This did not sit well with the young lady charged with protecting Canada.

“Are you going to tell me… or are we going to have to strip your car and your person?”

“The answer is no, but what I want to know is why are you asking me this? It is not against Canadian law for me to bring in any amount of currency, is it?”

“No,” she said, “it is not. But it is against U.S. law!”

To underscore what she was saying she pointed 75 yards to the U.S. Customs office welcoming southbound traffic.

“So what you are telling me is that you are not only a Canadian customs agent, but you are also acting at the behest of the United States government?”

I realized I was walking a razor thin line and in jeopardy of having my car torn apart. Fortunately she handed me my drivers license (the days before you had to have a passport) and without a word she motioned me to continue on my trip.

A couple of weeks ago I wrote to you about the War on Gold. What I have learned in the last few years is that our government is conducting a War on Cash. Washington despises cash because it is an instrument we can use to exercise our liberties without being monitored. Yet for non-criminals like you and me it is a disappearing tool. Fewer and fewer of us do business with currency any longer, leaving whatever commerce we have easily tracked and traced.

Yet just as criminals continue to have ready access to guns, they too have mountains of cash. There is almost $900 billion in circulation, four times the amount there was in 1990. Meanwhile there are only 300 million Americans. If the drug cartels and terrorists weren’t holding buckets of cash, every man, woman and child would have $3,000 stuffed in their pockets or mattresses. Even if you account for what the banks have on hand (which is surprisingly little), that is a ludicrous number.

Law abiding Americans are without the utility of cash and the inherent privacy it allows when conducting commerce. Yet the drug dealers and terrorists have stacks and stacks of currency on hand.

Today our government is able to track almost all of our transactions in this increasingly cashless and restricted society. Never mind the War on Drugs and the War on Terror. It seems to me that the real war is being conducted on the American people.

Obama’s Incompetence Has Left Israel Gunning for War

“(Obama) is too much Chamberlain and not enough Churchill.”–Chris Matthews, MSNBC.

President Obama has been in office more than a year, yet his administration’s lack of accomplish is startling.

Obamacare is DOA. The total budget is tipping towards $4 trillion per year and the federal deficit will hit a record $1.6 trillion this year.

Yet all this and an unemployment rate of almost 10 percent will not prove to be the President’s biggest blunder. That distinction will likely go to his foreign policy failures whose fruition leaves Israel set to wage war, energy prices and the dollar be damned.

It almost happened once before, almost three decades ago when I was just getting started in this business.

The morning traffic that the growing city of Spokane could muster was bottlenecked on Monroe Street as I headed south towards downtown and my dad’s offices at Myers’ Finance & Energy. It was June and the morning sun was pouring into my old Pontiac whose only climate control was rolling down the windows.

I fussed through the push-buttons on the old radio until I hit the news channel. The headline blared out of the single speaker on the dashboard: “Israeli jets have struck and apparently destroyed Iraq’s nuclear reactor.”

It was the coups de grâce in Saddam Hussein’s nuclear ambitions and the world was fortunate that Israel was able to pull it off—even if the markets were spooked. The attack and the near miss on a broader war helped push bullion prices up more than 20 percent that summer.

It is no secret that Israel is looking to launch a similar strike, this time on Iran’s nuclear processing facility.

But Iran is no Iraq. Besides the fact that Iran will not be caught flat-footed there is the fact that Iran has a far more capable military than what Iraq had 29 years ago.

There is also the fact that Israel won’t have a strategic ally if it executes another attack on a Muslim reactor. Iran cooperated with Israel during its attack on Iraq’s Osirak reactor, providing the Israeli air force with maps and other tactical information.

“There is no guarantee that the Iranian nuclear facilities would be eliminated. Iran could be expected to have learned the lessons exposed by the experiences of both Iraq in 1981 and Syria in 2007, when Israel destroyed their suspected nuclear facilities,” writes the Feb. 3, Sydney Morning Herald. “One would expect Iran to have located many of its nuclear facilities either deep underground or within the mountains to reduce their vulnerability to that type of attack.”

Not only can Iran repulse such an attack on its nuclear facilities but it can threaten the entire region in ways that Saddam Hussein could only dream off.

Iran Captures the High Ground

Last year Iran announced that it had successfully launched its first domestically produced satellite into orbit using an Iranian-built rocket. Tehran proclaimed that “the official presence of the Islamic Republic was registered in space.”

That rocket launch shows that Iran is now able to gather its own satellite intelligence and demonstrates the strides the country has made in rocket technology—the kind of rockets that can be used in a first strike on any of its neighbors.

Furthermore, Iran is working on a second nuclear power plant. It is conceivable that Israel might be successful in knocking out one of the reactors. The other would be left intact and able to develop nuclear weapons after a protracted stand-off. That sets up the possibility for the region’s two super-powers to go, as Slim Pickens said in the movie, Dr. Strangelove: “Toe to toe, nuclear combat.”

America’s Lack of Leadership

So what is the Obama administration doing? It is playing peacemaker and appeaser.

Early in his administration Obama had said he would give the Iranians until the end of 2009 to change their policy on nuclear weapons development. But a year later the Iranians continue with plans to develop a nuclear warhead.

As England did with Hitler, so far America has focused on a diplomatic solution to the “Iran problem.” The Obama administration wants to bring together a coalition that will impose what it calls “crippling economic sanctions” on the Iranians. The most decisive would be stopping Iran’s gasoline imports. But such sanctions are now unlikely as China and Russia have made it clear they will not participate.

Last week Vice President Joe Biden launched a blistering attack on Iran’s hard-line leaders, claiming they were “sowing the seeds of their own destruction.”

Biden’s comments came days after the United States sent more warships to the Gulf and pledged to America’s most important allies to increase its missile defense systems in the region. In other words, the administration is desperately trying to use tough talk and an unproven missile shield to protect the world’s strategic oil supplies in Kuwait, the United Arab Emirates and Saudi Arabia.
 
In the face of the greatest threat of nuclear war since the Cuban Missile Crisis, the Obama administration is launching angry words while trying to build walls to protect its allies. If it reminds you of Neville Chamberlain, you are not alone.

“If you want to compare Obama in any way, compare him to Neville Chamberlain. He says we’re going to have peace in our time,” commented Rush Limbaugh.

In part the U.S. is playing peacekeeper because it is in no position to begin another conflict. Problems in Iraq are far from over. In fact, civil war may be looming. Kurdish and Iraqi forces are said to be near the brink of a war.

Last week the Pentagon made an announcement underscoring why President Obama is so quick to look for diplomatic solutions. The Pentagon flatly stated that the U.S. is to abandon its doctrine of always being ready to fight two simultaneous-conventional wars.

This message has not been lost on Israel. If the past 60 years of history have demonstrated anything it is that the Jewish state will use its military as a first option.

When Israel successfully executed its attack on Iraq in 1981 it helped push gold prices from $390 to $463 per ounce. A strike now that is less than a resounding success could push bullion prices dramatically higher, perhaps in the $1,500 to $1,700 per ounce range. I firmly believe this because the summer of 1981 gold price spike happened when bullion was in a withering bear market. Today the Midas metal is in the midst of one of its biggest bull markets ever.

Money market funds are currently paying an average return of less than 1 percent. That is the smallest return that money markets have ever paid. Consider the fact that at this rate, it will take more than 500 years to double your money.

I believe we are at the brink of a Middle East war at a time when Washington is proving to be impotent with the economy and foreign relations. Add to it the crippling downward momentum of the dollar and you have what I believe is every reason to get out of cash and into energy investments and gold.

Action to take: Sell-off all fixed return investments (bonds) other than short-term Treasury bills and add to your holdings of physical gold. I like 1-ounce U.S. American Eagle coins as well as 1-oz. Canadian Maple Leaf and South African Krugerrand coins.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

The War on Gold: A Personal Account

“Open up,” demanded a man.

I rose from the breakfast table. It was Sept. 19, 1974. I caught a glimpse of the flashing lights bouncing off the premature frost that clung to our trees.

Three cruisers from the Royal Canadian Mounted Police (RCMP) had converged on our small farm south of Calgary, Canada.

“What the hell is going on?” my father C.V. bellowed from down the hall.

I was 15 and filled with dread, fear and fascination. “The cops are here!”

My old man whipped-open the door. Five RCMP officers and a plainclothes tax agent burst into our home.

At the same moment in Calgary the Mounties and Revenue Canada raided my dad’s offices, his lawyer’s office and his bank branch.

Was my father a kidnapper or a bank robber? Hardly. Yet in the eyes of the government he was something much worse. He was a Libertarian and a gold-bug! Worst of all, he had been buying gold for his United States subscribers at a time when it was illegal for them to own it (more about this in a moment).

That morning agents were hunting down documents on my dad and his newsletter, Myers’ Finance & Energy (MFE). But they couldn’t touch his company, Interpublishing, a bona fide operation in Switzerland paying taxes in Switzerland.

Interpublishing was a legitimate offshore company set up by my dad’s accountants. Interpublishing was not a shell company. In fact it was organized the same way as the Canadian Pacific Railway Company, one of Canada’s oldest and largest public companies.

The Midas Mess
The Mounties were out to get their man. It had to do with Americans buying and owning gold and my dad acting as their agent. This had some in the U.S. Treasury Department very upset.

You see at that time it was illegal for Americans to own gold although most believed the law was unconstitutional, and indeed, the U.S. Treasury had become aware of purchases by U.S. citizens.

Meanwhile gold ownership was fully legal in Canada. So my father had started buying gold for any subscribers that could put cash on the barrelhead; charging only a small commission and storage fee.

C.V. wrote in MFE: “We don’t care if you are Chinese, Burmese, Russian or American. Gold ownership is legal in Canada; put the money on our desk and we will buy you the gold. Your account will be numbered but your corresponding identity will be kept secret in Switzerland.”

After the tax men had recorded every check which had been paid by the Americans for this gold they still did not have the owner’s names. And Washington wanted names.

It turned out they had just the instrument to get them. It’s called blackmail. You see, if the Americans couldn’t come forward to claim their gold it could be held hostage to any assessment the Tax Department might like to issue against my dad.

The hope was that mounting pressure from the gold owners would force my dad and the Swiss company to pay the assessment—right or wrong. My dad said it was like hijacking; the only difference being hijackers held third party lives while the tax men held third party money.

Americans Demand their Gold

Then good fortune shined. U.S. gold ownership became legal on Dec. 31, 1974. This meant that owners could come forward. But it meant much more. For if the claimants identified themselves, the Tax Department, having all the documents and keys, had automatically become the legal custodian to the gold and fully responsible, just as Interpublishing had been, to turn it over to the rightful owners upon demand.

The safety deposit keys and the identification list were sent via Teletype from Switzerland and turned over to the Tax Department. Now the tax men not only had the gold, they had everything, including the responsibility.

At this point they were holding a hot potato. Rentals on safety deposit boxes began coming due. Revenue Canada had to decide if it was going to bill the clients just as Interpublishing had been doing, or if it was going to pay the rentals itself? And what if an owner sent in an order to sell? Was Revenue Canada legally obligated to sell it and forward the check?

Like it or not the tax man was in the gold business.

My father advised all clients to write Revenue Canada demanding that they execute the delivery of their wholly-owned gold post-haste.

The Gold is Freed, the Gold-Bug Imprisoned
Things got pretty hot. The gold owners had to be answered. A huge counting operation was arranged. It included a representative of Interpublishing in Calgary, the company’s lawyers, the Tax Department, officials of the bank and two security guards. All boxes were opened, counted and recorded. In all there was $4 million worth of bullion!

When the count was finished it was found that every claimant’s gold was separately wrapped. Not a coin was missing. None belonged to C.V. Myers or Interpublishing.

Falling prices spurred American owners to action. Through a Calgary law firm they launched an action against Revenue Canada and the individuals they claimed had acted beyond their authority in withholding from them their rightful property.

The deadlock broke in March 1975, when the Supreme Court of Alberta admonished Revenue Canada and ordered the return of each and every ounce of gold to my dad’s clients. No damages were paid: there was not even an apology.

Norman Stone wrote a book about the case titled: Unbridled Bureaucracy in Canada, The Bizarre Case of C.V. Myers.

Stone concluded that Canada’s tax department had acted on orders, not from Ottawa, but from Washington. Furthermore wrote Stone, “The capitulation forced by the court left the taxmen (sic) red-faced, angry and vengeful. Talk among the personnel in the Department was funneled back: Get Myers!”

It didn’t take long. I was finishing up my junior year in high school. The old man and I pulled up to his parking space outside his office in late spring 1975. As we got out of the car door two plainclothes agents blocked his way.

“C.V. Myers?” asked the cop.

“Yes.”

“You are under arrest.”

“What for?”

“For evasion of taxes. I must warn you that you don’t have to speak and anything you say may be used against you.”

The cops cuffed my old man right then and there. I was dumbfounded. As the back door on the cruiser was being closed he yelled to me, “Call my lawyers, I am under arrest and on my way to jail.”

Tale of Two Trials
The charge was evasion on $1.8 million in income, exactly the same amount which had been assessed Interpublishing eight months before.

Later that day dad got out on $100,000 bail. But the real cost of urging Americans to buy and hold gold was yet to be announced.

Over the next two years my dad would face two trials. In the first one he was fully acquitted. The second case—a trial de nova (double jeopardy, which was later eliminated by the Canadian Constitution) found my dad guilty and sentenced him to two years plus a day. He was given hard time, especially for a man who was in his 70s.

After my mother died my dad stood over her casket. He was weeping softly as he held one of her hands between his handcuffed two. Behind him stood an impatient corrections officer, telling my dad to hurry, that he had to get him back to his prison cell. He led my dad away just as a young girl started singing my mother’s favorite song: Amazing Grace. My 8-year-old nephew began to sob. Our family mourned in quiet devastation.

But all was not lost. Word of the injustice began to spread. For example the late Congressman Larry McDonald and Congressman Ron Paul urged Ottawa to release my father. And there were editorials in the press condemning the sentence and calling my dad a political prisoner. Colleagues like Richard Russell, Harry Schultz and Jim Dines began writing the Prime Minister and Members of Parliament.

After my dad was diagnosed with liver cancer he was released from Bowden Federal Penitentiary. Less than two years later he died in Loma Linda, Calif., a free but broken man.

Gold had given my dad a sterling reputation, a loyal following and a small fortune. But in the end he paid a terrible price.

What was done to just one individual illustrates what lengths government will go to shut-up its opponents and enforce its will. I know, I was there; a witness to the war on gold.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Nero Once Fiddled, Now Obama is Manning the Printing Presses

“To Rome said Nero: ‘If to smoke you turn I shall not cease to fiddle while you burn.’” –Ambrose Bierce

For President Obama it has been a dismal year. He cannot claim victory on even a single one of his big four agendas: healthcare, the economy, the war or the environment. It seems for every step forward the Obama administration has taken two steps back.

Before you agree to wholeheartedly embrace this rumbling disaster, take note that Obama’s failures, even if they extend just another three years, are the nation’s failures and there will be consequences thrust upon us all.

Meanwhile Obama’s approval ratings continue to tank. At the crucial 100-day mark of his presidency in April 2009, 63 percent of those polled believed the President had accomplished a “great deal.” His overall approval rating, according to Real Clear Politics’ RCP Average, now stands at 49.6 percent, with 44.9 percent saying they disapprove.

With confidence in the leadership evaporating, the economy is gingerly perched on a precipice. At the same time the stock market has lost its upward momentum and could be susceptible to another crash.

“Despite the rebound of the stock market and the return to huge bonuses on Wall Street, most Americans remain mired in debt and millions of them are living in depression-like conditions,” says The Star.com. “The economy has come back far enough to reassure the wealthy and the corporate elites that things ought to return to pre-crash ways and that there is no need for radical measures of the kind they were prepared to accept during the great bailouts a year ago.”

The economy is so weak that one adult in eight and one child in four needs food stamps. Wall Street has so far ignored the three-legged table that is our economy, but perhaps not much longer.

Bear Still on the Prowl
In January the Federal Reserve reported that commercial real estate losses could reach 45 percent this year. The result of this is $1.5 trillion in commercial loans that could default.

It gets worse. Option adjustable rate mortgages have a gun at their head, with $29 billion recast higher at the end of 2009, followed by another $67 billion in 2010. Barclays Capital announced, “We expect 81% of the option ARMs originated in 2007 to default.”

If you want to know how fast this will sink Big Board stocks ask yourself this—how long does it take a gaggle of money managers to say, “Titanic?”

To date Wall Street is bragging about corporate earnings that “are not as bad as expected” and my favorite, “lower than expected” inflation. Whatever happened to the days of Ronald Reagan and Paul Volcker when any inflation was bad? That inflation could be worse is like your doctor telling you that your cancer is spreading, but cheer up… it’s not spreading as fast as he anticipated.

The Obama administration has been very good at only two things: expanding the breadth of the federal government and increasing the amount of dollars.

“What we don’t know yet is… whether we have big government or small government; they’re more interested in whether we have a smart, effective government,” said the President just before his inauguration.

So far so bad says the January/February issue of The Atlantic in its cover story. “A business organization as inflexible at the U.S. Congress would have a major Whale Oil Division; a military unit would be mainly fusiliers and cavalry,” decries the magazine, adding, “The American tragedy of the early 21st Century; a vital and self-renewing culture that attracts the world’s talent; and a governing system that increasingly looks like a joke.”

Part of the problem for the Democrats is that they subscribe to the dogma of Franklin Delano Roosevelt, that big government can dictate prosperity. What they will learn instead is that more money in and of itself is not more wealth.

Rome’s Spectacular Rise and Inflationary Fall
The god emperors of Rome constructed their empire by implementing hard money. It financed the greatest realm the world had ever experienced.

The hard money was paid out to its armies which in turn conquered most of the ancient world. Jack Weatherford explains in his book, The History of Money, “Rome’s fame and glory came from the military and from conquest, and their riches, too, derived much more from the achievements of the army than from those of the merchants.”

As long as Rome’s legions conquered new lands, the empire thrived. But each new occupation required ever greater resources. Around 130 B.C., Rome occupied the kingdom of Pergamum. In a few years, Rome’s spending doubled from 25 million denarri (a Roman silver coin) to 50 million.

By 63 B.C., the budget grew to 75 million denarri, and spending was beginning to spin out of control. Vast strategic ambitions and social expenditures were beginning to mount.

When Augustus siezed the throne Rome was at its apex, spending rose to an astonishing 250 million denarri or 10 times what it had been 60 years earlier.

By the time the Empire had conquered Europe the cost of its army vastly exceeded the treasure it was repatriating.

Yet spending continued to climb even as revenues declined. Sound familiar?

A string of emperors grasped at an immediate solution. They began to re-mint new money with less and less silver in it.

To pay for the rebuilding of Rome after it burned Nero reduced the silver content in the denarri by a whopping 90 percent! Before long confidence in Roman money began to collapse. Eventually the Empire imploded, crushed beneath its weighty ambitions, with a mountain of debt and a debased currency.

The New Romans
President Obama and the Federal Reserve have a much easier time of opting for inflation than Nero did. Our leaders don’t have to re-mint debased coins or even overwork printing presses. Instead they can create money out of thin air with a keystroke.

Last summer the Wall Street Journal wrote that the U.S. government has been, “flooding the market with dollars. By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn’t put money directly into the stock market but he didn’t have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear… The dollars he cranked out didn’t go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market.”

The problem is that the Obama/Bernanke bull can’t last. The creation of money is a zero sum game and alone it does not revive a fundamentally weak economy. And unless the economy itself improves—beginning with greater confidence in the dollar—the stock market is bound for a serious fall.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

The Deep Truth About Oil and the Gulf of Mexico

In the time it takes you to read this story Americans will have gulped down 200,000 barrels of oil. From that total 120,000 barrels will have been imported, much of it from the Persian Gulf; a region that harbors a growing hatred of the United States.

This helps explain why Big Oil is making its last stand hundreds of miles out in some very deep waters.

Consider Chevron Corp., the world’s fifth largest publicly traded oil company. It is operating an oil platform in 4,300 feet of water far out in the Gulf of Mexico. It’s called the Clear Leader, and aboard it sunburned roughnecks are drilling through nearly five miles of ocean bedrock.

Some 200 miles due south of New Orleans Chevron has spent 10 years and a whopping $2.7 billion for this project. This is the cost of running a drill and casing more than 30,000 feet through earth and ocean, the same distance that an airliner flies above the earth.

Deep Gulf Oil Rig Map

Chevron will spend billions more and in the end, even with all the high-tech in the world, there are no guarantees that its deep-water experiment will hit pay-dirt. In fact there is less than a 50/50 chance that Chevron’s latest deep-sea adventure will yield anything. Still Chevron and their brethren don’t have a choice.

The Wall Street Journal sums up the situation: “Big easily tapped oil fields close to shore have become off-limits. Western oil companies have been kicked out of much of the Middle East in recent decades, had assets seized in Venezuela and seen much of the U.S. roped off because of environmental regulations. Their access in Iran is limited by sanctions, in Russia by curbs on foreign investment, in Iraq by violence.”

Remembering the Days of Wine and Rigs
I have never met a group that exudes more bravado than wildcatters explaining their latest project. But over the past decade that kind of confidence in exploration has evaporated. In fact the mood in meccas like Calgary and Dallas has turned downright dour. The industry understands that the conventional oil opportunities are drying up.

To understand what is happening with oil think of a bell curve. On the upside of the curve, as production is increasing, exploration and production costs are pretty cheap. But after you have hit the top of the curve and are heading down, it gets harder to find oil, and oil that is found costs more to drill and cap.

To understand the importance of being on the downside of the curve, consider that it took 4.5 billion years for the earth to give us 2 trillion barrels of oil. Since 1886, when the first well was capped, we have used up half of all our inheritance. We have long since past peak discovery rates and in 2008 we hit peak oil production.

The Micro and Macro Economics of Oil
For a specific oil field the key event is not when it runs dry, but the period after production peaks. It is at that time that the field yields less and each barrel pumped costs more.

It is the same dynamic that is working at a global scale. What jars prices higher is not when the oil runs dry, but after oil production has peaked, especially as demand and population are rising.

Consider that world per capita oil production topped out in 1979 and has been in decline ever since. The peak in volume of total world oil production is upon us even as the demand for oil is increasing rapidly.

Globally, petroleum discovery rates peaked during Ed Sullivan’s heyday. In fact, from 1960 to 1980, 600 billion barrels of oil were found. Since 1990 fewer than 250 billion barrels have been discovered.

Despite all our technology and knowledge, the industry is finding oil at less than half the rate of 50 years ago. And the oil people I’ve spoken to believe that less than 100 billion barrels will be discovered this decade.

To understand just how bad this imbalance is, consider that for every new barrel of oil we find the world will consume eight barrels. When my father was publishing OilWeek Magazine 50 years ago that ratio was just the opposite.

Just as individual wells within a field peak at different times, so do different regions of the world. The dilemma that the Obama administration faces, and the real reason the U.S. is embedded in the Middle East, is that U.S. oil production peaked three decades ago and has been in decline ever since. We are pumping less than 5 million barrels per day, or half as much oil as the nation produced when Jimmy Carter gave his fireside chats (see U.S. Oil Production Chart).

U.S. Oil Production Chart

The Persian Gulf has become the epicenter for petroleum as the once rich oil veins in Mexico and the North Sea bleed dry.

The only land with substantial conventional oil reserves is in the Middle East. Iran, Iraq, Saudi Arabia and Kuwait hold nearly two-thirds of the world’s oil and nearly all of the world’s remaining cheap oil.

What do I mean by cheap oil? Compare Ghawar—a single mega-elephant field in Saudi Arabia—to the deep waters in the Gulf of Mexico. Both have billions of barrels of oil. But it costs $2 per barrel to pump oil out of Ghawar while it costs more than $15 per barrel to deliver oil from the Gulf.

"A lot of people can get the very easy oil," says George Kirkland, Chevron’s vice chairman. "There’s just not a lot of it left."

As the once-rich fields in the Americas and North Sea are depleted, the U.S. becomes more and more dependent on Middle East oil.

While the amount of oil available may be shrinking, the world’s need for it clearly isn’t. China’s and India’s demand for petroleum continues to rise even in the face of a global recession.

Outlook for Oil
As I mentioned in my Forecast for 2010, energy prices may pause at these levels. Oil has already recovered above $80 per barrel. That’s more than twice as high as it traded 13 months ago. The truth is oil would be back above $100 per barrel except for lingering fears of deflation.

However it is beginning to look like the Bernanke bailouts will offset a depression. But I have to tell you, I wake up anxious each weekday morning and the first thing I do is check the business channel. I can’t seem to shake the feeling that another shoe may drop. Still, I am cautiously optimistic about oil prices and oil stocks.

A Bet worth Taking
The Gulf of Mexico won’t change America’s energy woes. It will however enrich investors who buy into the right plays. I think the best opportunity of the group is Anadarko Petroleum Corp. (NYSE, APC, $66.31).

Anadarko is one of the largest independent oil and natural gas exploration and production companies in the world. It has 2.28 billion barrels of oil equivalent in proven reserves.
Anadarko Petroleum Corp. Stock Chart

Anadarko is also the largest independent deepwater producer in the Gulf of Mexico. It has discovered 30 fields in the Gulf and has infrastructure which includes 11 hubs and more than 50 sub-sea wells. This year the company will explore its extensive acreage that has been accumulated in some of the richest regions in the Gulf.

To learn more about Anadarko’s projects in the Gulf of Mexico, you can go to the company’s fact sheet here.

I like the leverage we get with Anadarko that frankly isn’t available with the large multinationals like Chevron. Anadarko has the properties, technology and expertise to strike it rich in the Gulf and it doesn’t carry all the excess baggage that burdens the multinationals.

Action to take: Call your stock broker and buy Anadarko Petroleum (NYSE, APC) at market.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

America’s Hundred Years War and What it Means for Your Bottom Dollar

A new decade arrived and the world woke up to another round of Islamic extremism.*

Last week President Barack Obama held a White House inquest into the intelligence failures that saw a man try to bring a jet down over Detroit on Christmas day.

Meanwhile the headline being pumped out by the world’s news sources reads: Yemen Jihad!

If Iraq and Afghanistan weren’t bad enough, now we have to worry about Yemen. These are getting to be trying times—especially if you are like me and have to use Google to find exactly where Yemen is.

If there is one thing aplenty these days it is information, and the above map, courtesy of the Internet, shows Yemen at the heel of the Saudi boot. That puts it pretty much at the epicenter of the Muslim world (shaded in green).

Of course, if you yearn for the return of cheap gasoline you will notice that Yemen is also dangerously close to the House of Saud and its elephant oilfields.

So what, you say? Yemen is just one more speed-bump in America’s 21st Century Autobahn.

Perhaps, but take note that the speed-bumps are starting to pile up, and if the idea of another Hundred Years War seems ridiculous, consider that the United States has already been fighting Muslim extremists since Oct. 23, 1983. On that day an organization calling itself the Islamic Jihad blew-up a Marine Corps barracks in Lebanon killing 299 U.S. servicemen. We have had to live with Islam and the radicals in it ever since.

More than a trillion dollars waged so far
All these years the U.S. has been involved in costly warfare in places like Kuwait, Somalia, Bosnia, Kosovo, Iraq and Afghanistan. And before we engage another enemy that happens to border on our most important strategic ally, Saudi Arabia, we might want to take stock of how successful these operations have been.

According to George Friedman in his new book, The Next 100 Years, A Forecast for the 21st Century: “The (Islamic) world is more fragmented then ever. U.S. defeat or stalemate in Iraq and Afghanistan is the likely outcome, and both wars will appear to have ended badly for the United States.”

One thing is for certain, these wars will have ended expensively.

According to The National Priorities Project, $950 billion dollars has been allocated to the wars in Iraq and Afghanistan. “In addition to this approved amount, the FY2010 budget shows a $130 billion request for more war spending. This would bring total war spending in Iraq and Afghanistan to more than $1 trillion,” The Project states.

In fact, you can check out the accumulating Cost of War Clock at: http://www.nationalpriorities.org/costofwar_home.

It is starting to appear that there is no end in sight for the bleeding of both men and money in this fight. That is at the crux of Washington’s bankrupt foreign policy. Already the war in Iraq alone has exceeded the inflation-adjusted cost of fighting in Vietnam. And that may be a gross underestimation.

The Washington Post says, “By the time you add in the costs hidden in the defense budget, the money we’ll have to spend to help future veterans, and money to refurbish a military whose equipment and materiel have been greatly depleted, the total tab to the federal government will almost surely exceed $1.5 trillion.”

If so, then the U.S. has spent more than $2 trillion in an attempt to re-shape the Muslim world. That is about half of what the U.S. spent in constant dollars to wage and win World War II.

Keep in mind that World War II paid huge dividends to America. It cemented it as the world’s largest superpower and allowed it to shape Western Europe and much of Asia into trade-friendly democracies.

Reconstruction loans and meeting soaring consumer demand from across the Pacific and the Atlantic created an unparrelled boon for U.S. businesses.

Fighting the extremists comes down to oil
Today American conflicts are creating more uncertainty than certainty, greater resentment than goodwill.

So the question resounds: why doesn’t America pick-up and leave the Muslims to themselves? The answer is simple: the U.S. must have future access to Arab oil.

All you have to do is consider the facts:

  • The total remaining conventional oil on the planet is less than 1 trillion barrels. That is about half of the earth’s original endowment.
  • The world is currently burning 80 million barrels per day. At the current rate there will be only enough oil to sustain the planet another 3 decades.
  • America makes up less than 5 percent of the world’s population but consumes more than 25 percent of the world’s oil. This is an especially bleak equation when you consider that the last conventional elephant oilfield in North America was discovered more than four decades ago.
  • The plum but so far undiscovered oilfields in the world lay beneath the shifting sands of the Middle East.

Unfortunately war expenditures, as well as a bevy of social spending (a.k.a. bailouts) by Washington, are putting a noose around the dollar’s neck. Our federal government has put us in harm’s way of not only Muslim extremists, but also a mounting debt crisis—a combination that could cripple the greenback and send oil prices soaring.

Terrible decade for the dollar
As the U.S. Dollar Index graph below shows, the greenback has been falling at a steady rate since 9/11.

In 2001 the U.S. dollar was trading at 120 against a basket of other currencies. Since then it has been spiraling down, the only interruption was during the economic crisis in late 2008 which spawned deflationary fears and created only temporary reprieve for the buck.

But having failed at that rally the dollar is testing historic lows. Technically a break under 72—not all that far below current levels—could be catastrophic for the dollar.

To date the Pentagon seems to have not learned a single lesson from Vietnam. More than a generation later, war planners and politicians are still unwilling to do whatever it takes—yes even the nuclear option—to kill and capture Osama bin Laden and his henchmen. Each failure by the U.S. to end terror against its own people only emboldens the jihadist radicals which include members of Iran and Pakistan’s leadership.

That is bad news for the country and for the greenback.

Action to take: continue to accumulate blue chip petroleum stocks, including holdings in Suncor Energy Corp (NYSE: SU), which is heavily invested in Canada’s oils sands project.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

*Since there was no year zero, the second decade of the 21st Century actually begins next January.

Investment Forecast for 2010: The Dollar’s Demise Sets the Table

The air was stifling. It was thick with dust and hung in clouds through the sweltering corridors. I was 7,000 feet deep in a Transvaal gold mine.

Worse than the heat was the noise. I had to yell to my guide, the chief economist for JCI Mines.

I cupped my hands to make a horn, and over the roar of tractor engines and jackhammer drills I yelled: “What do you see for gold next year?”

My Afrikaner escort shouted over the din: “You tell me what the dollar does and I will tell you what gold does!”

It just so happened that the year was 1990 and the U.S. greenback was about to make one of its biggest bull runs ever. The result was a bear market in bullion that took the price of gold all the way down to $252 per ounce.

Today, with the price of gold about $900 higher than it was then, the same question regarding gold in 2010 cuts to the wick: What is the dollar going to do?

An Avalanche of Money
One thing is certain. This is not your father’s Federal Reserve.

The Fed that existed 30 years ago was chaired by Paul Volcker. Volcker was brought in to curb soaring inflation. To do that he decided his first priority was to protect the dollar, recession be damned. At the same time Ronald Reagan was coming into office. He was trying to curb government spending.

As the chart below shows, Volcker jacked the Fed funds rate up to almost 20 percent. In the process the United States endured a great rolling recession that devastated the commodity markets and farmers. Yet for the next two decades the dollar would be the world’s kingpin currency.

With the exception of The Crash of 1987 the U.S. economy was on firm ground, and prosperity was growing.

Then came a speculative stock bubble, 9/11 and runaway deficits.

In the wake of all this are President Obama and Fed Chairman Ben Bernanke who are not squeezing a single thing! Instead they are creating a tsunami of money. It amounts to throwing gasoline on a fire.

In just over a year the Fed has increased our monetary base by a whopping 120 percent! That is more than double the previous highest annual increase over the past 50 years. The Fed has made huge loans to private lenders and bought more than $1 trillion of mortgage securities and hundreds of billions of dollars of long-term Treasury bonds. It has succeeded in lowering the federal funds rate below 1 percent—and even, for most of the time, to less than half that.

Washington is trying to jump-start the economy with unprecedented amounts of money. Yet the old economist adage holds, “It’s like pushing on a string.”

 Unless there is demand for money by willing lenders and borrowers the economy is not going to improve. What is going to happen is a train-wreck for the dollar.

The dollar is more than 14 percent off its March peak, and some worry that additional losses could prompt foreign investors to start selling dollar-denominated assets.

But while a sluggish U.S. recovery and low interest rates mean the dollar may have further to fall in the year ahead, very low inflation means a crisis is far from imminent, said Henry Kaufman, president of Henry Kaufman & Company, Inc.

"There has been no dollar crisis," Kaufman said. "The retreat of the dollar has been gradual, it has been orderly and it has not had an impact on the securities market."

Perhaps so, but as this U.S. Dollar Index chart shows, the greenback is still fading fast in a bear market that began eight years ago. If the dollar continues its slide in 2010, as I think it will, it will break below its 2008 lows of 71.5. When that happens the dollar will be in uncharted territory. Just how far it could slump from here is anybody’s guess, but with offshore investors holding trillions in dollar assets, the dollar’s direction is of critical importance to everyone.

Of course if you want to you can buy a 30-year T-bond today that will pay you a 4.7 percent annual return. Given that the real rate of inflation is at more than five percent, that is a losing proposition.

Now the only reason that Washington has been able to get away with selling such risk for such a miserable return is two-fold:

  1. Nations like China, India, Japan and Germany don’t have another currency to put their surpluses into.
  1. The deflation fears from 2008 still linger, so rather than put money into real estate or real assets, trillions of dollars are being invested in U.S. Treasuries.

But disgruntlement among lenders is growing quickly, leaving the U.S. bond market ripe for a collapse. Last month Treasuries fell, with the gap in yields between 2-year and 30-year securities reaching its widest margin since 1980. This means that people holding long-term Treasury bonds want a much larger return than those investing in short-term Treasuries. The reason is simple—long-term confidence in the dollar is evaporating.

Meanwhile the U.S. continues to be a beggar of last resort. To pay for all of President Obama’s plans the government has to auction off hundreds of billions of dollars in U.S. Treasuries this year.

In 2006 the U.S. bond market was worth an estimated $44 trillion. If interest rates rise, as I think they will, trillions of dollars in wealth could disappear. That is not just wealth held by foreigners but by all Americans.

Furthermore, the biggest danger will be the U.S. will have to finance its deficits with additional Treasury debt. To get those loans, interest rates will certainly climb.

Forecast for 2010
Dollar: Look for an even weaker dollar in 2010. The U.S. Dollar Index is close to breaking down and losing all technical support. That could throw traders into frenzy.

Bonds: Expect a smash-up in the bond market as investors are now holding bonds that pay a pittance. To sell off its Treasury debt the Fed is going to be forced to raise interest rates which will throw bond prices into a tailspin. Higher rates will also be a stake in the heart of the…

Stock Market: The Dow Industrials are flirting with 11,000. My expectation is that the Dow may touch upon this level before higher rates drive stock prices lower. Look for the Dow to be under 7,500 by the end of the year. I expect an even worse year for the tech-packed NASDAQ. This year will be a tough year for investors unless they are in real assets, especially…

Precious Metals: Gold continues to shine, although expected profit taking will happen along the way. Washington and other governments would love to keep a cap on the price of bullion, but right now they have much bigger fish to fry. My expectation is that the Midas metal will top $1,500 per ounce before year’s end and silver will rise from the $17 range to $25 per ounce. That leaves us with one other key sector…

Energy: It is going to be a mixed bag for energy this year. In fact, oil could easily fall back toward the $60 per barrel range if interest rates increase enough to choke off the recovery. Still, world demand for oil continues to grow. I think that over the long-term oil prices are headed back toward $150 per barrel. That may not happen, however, until we are closer to 2012.

Well, there you have it… my forecast for 2010. But keep in mind something that the Yankee great, Yogi Berra, said, “Prediction is very hard, especially about the future.”

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

The False Hope of Hi-Tech

“I don’t know if HAL is homicidal, suicidal, neurotic, psychotic, or just plain broken.”
Arthur C. Clark, 2010: Odyssey Two

Ten years ago today the clock was ticking down on Y2K. Many feared a social and economic meltdown; that a programming glitch would throw us into a new Dark Age.

Fast forward one decade. Washington and Wall Street are now betting the bank that technology is America’s savior. Everything seems within reach—more jobs, clean energy, a budget surplus, even a super-bull market.

Technology was not the Antichrist a decade ago, nor is it our savior now. It will not destroy us. Nor will it revolutionize our world. That was the power of innovation a century ago, not today.

Revolution Comes to the Farm

The kid tightened the reins on the right line and then hollered, “Get-up!”
                       
Eight thousand pounds of horseflesh simultaneously hit their heavy collars and the grain wagon started to amble its 10-mile journey to the tiny town of Lomond in Alberta, Canada.

The year was 1927 and that kid was my dad, Vern Myers.

Fifteen years before he had barely survived his birth. He was the family’s first child. His mother lay in agonizing labor for nearly three days. Aided by a local midwife for the first few hours, it became apparent that this was a crisis and required a skilled doctor. The baby’s father, Amil, saddled the fastest horse and headed to Stavely, 40 miles to the west.

These were not the days when one picked up the phone and called 911. There were no paved roads or autos that sped from place to place. The closest hospital was Lethbridge some 70 miles away where the staff consisted of a couple of doctors and half a dozen nurses.

But this time luck was with him. Amil borrowed a friend’s fresh horse. He and the doctor arrived at the lonely homestead shack.

Fifteen years later Vern was holding the lines of four horses on a wagon loaded with 7,680 pounds of the finest milling wheat in the world. He was just starting the first leg of his destination to the rails at Lomond, Calgary, and on to Ontario. There it would be loaded onto ships for Europe.

The grain tank pulled onto the prairie dirt trail and headed east. The kid restrained the eager horses. He knew that soon they would struggle to climb the 300-foot elevation before the trail leveled out. When they reached the top, the horses, with their heaving lungs, required a five-minute rest.

As the Clydesdales recovered Vern heard the strange sound. It was a motor, but it was not from a car. He looked into the lower valley that was hidden from view by the grade that had just been climbed. A cloud of dust rose in the sky. Now he could hear the straining motor and then the monster broke over the top. It was a truck loaded with golden wheat. The vehicle was gaining speed and Vern could hear the driver shifting gears. The truck pulled alongside. It was the neighbor Freddie Noyes. In a flash he was past.

An hour later and four miles further down the road, he noticed a cloud of dust approaching. It was Freddie on his way back home to load more grain.

Vern was just unloading the wagon box in town when again the noise broke the still air. It was Freddie with another load.

Watering his spent horses back at home Vern was amazed. He and Freddie had both started work at the same time. Vern had delivered 125 bushels of grain to the elevator and returned home in just over five hours. Vern had traveled 20 miles.

Freddie had driven 120 miles and delivered 600 bushels in six hours! And Freddie wasn’t one bit tired. In one day the Industrial Revolution had come to the homestead.

Enter the Microchip

In 1990 the boy that saw the truck come to the West died. He had experienced more change during his 78 years than the world had undergone during the previous millennium.

He was born nine years after the Wright Brothers flew at Kitty Hawk. As an old man he would cross the Atlantic in the Concorde at 1.5 times the speed of sound. He had seen the application of indoor plumbing, electricity, the telephone, the television, space flight and even the inception of the Internet.

I took his place as publisher at age 30. I was still in school studying at a university just as computer science was being embraced and I was enthralled by the wonders of the micro chip.

That first year I bought an IBM 386. It was a marvel for the time, with more than twice the memory of its predecessor, the 286. In fact the salesman bragged it could do 11.4 million instructions per second (MIPS)! I didn’t know exactly what that meant, but it sounded impressive.

Today the top-of-the-line computer is a diesel processor Intel Core i7 Extreme. If you ask me it sounds more like a tractor than a computer. I suspected it was a lot faster than my 3-year-old computer and far better than that old 386. But I was shocked at just how much faster it is.

The i7 Extreme lives up to its name; it does 76,000 MIPS which makes it roughly 70,000 times faster than the 386. The Extreme also has 8,000 times more memory! (Author’s note: To you computer aficionados, I did my research and understand that MIPS is a very raw indicator.)

Yet the truth is that all this speed is wasted on me. You see, I use my computer like I once used a typewriter. And unless you are doing something like scientific research or wasting your time playing video games, that computing power is senseless.

This is what MetaFilter (www.metafilter.com) has to say about the revolution of the personal computer when they compared a 1986 Mac Plus to a 2008 AMD Dual Core.

“When we compare strictly common, everyday, basic user tasks between the Mac Plus and the AMD we find remarkable similarities… thus it can be stated that for the majority of simple office uses, the massive advances in technology in the past two decades have brought zero advance in productivity,” said MetaFilter.

Certainly the Net and these super-computers provide a plethora of information. But are we really any better informed? No says Wired Magazine.

According to the June 2007 issue, “More than a decade after the Internet went mainstream, the world’s richest information source hasn’t necessarily made its users any more informed.”

Wired backs up its claim with a 2007 study from the Pew Research Center for the People & the Press that showed that Americans, on average, are less able to correctly answer questions about current events than they were in 1989.

That’s right, Americans who call the Internet their primary news source know less than fans of TV and radio news. It seems that people are more interested in Jessica Simpson than in Jim Lehrer.

A Bankrupt Revolution

The advent of the automobile, the assembly line, the airplane and the telephone revolutionized the American way of life. At the beginning of the 20th Century the United States was seen as a renegade colony. In less than 50 years we became the richest most powerful nation in the world.

By the late 1960s the American dream was within almost everyone’s grasp. Little wonder—the U.S. was the world’s largest manufacturer, creditor and exporter.

But by the 1980s the rest of the world was starting to catch up. Most of us, heck all of us, kept wanting to get more “things.” But now we weren’t earning them.

To get them we started doing something America had never done before—we started borrowing hand-over-fist. The result is we have created a debt crisis the likes of which has never been seen. And most importantly, it’s a calamity that won’t be resolved with even faster and smarter machines.

Yours for real wealth and good health in 2010,

John Myers
Myers’ Energy and Gold Report

P.S. Next week I will look at the debt crisis and what it means for your investments in 2010.

Santa Claus

One Christmas past my eldest son Richard was furious with me.

Since he was old enough to remember, his mother and I had told him about Santa Claus. It seemed like a harmless enough fib.

He loved Santa Claus. Not only was Santa a magical character of mythical proportions, but his very existence—in the eyes of a 7-year-old—meant limitless potential. If he wanted something special, all he had to do was ask Santa Claus.

Of course Santa didn’t always bring everything he wanted; but there was always the prospect that he could, or the hope that next year he would. It was the ultimate fantasy of something for nothing.

Unfortunately Richard’s fairy tale came to an end.

“There really isn’t a Santa Claus, is there Dad?”

It is one thing to perpetuate a myth and another one to outright lie.

“No son,” I said, “Santa Claus isn’t real.”

Disappointment washed over his face. He had to get the truth from his cousin. Mom and Dad couldn’t be trusted. The whole thing, even the milk and cookies set beside the fireplace, were one big lie.

Yet for our 5- and 3-year-olds—Matthew and Sarah—the myth burned on for a few more years. They knew there was a Santa. Mom mailed letters to the North Pole every year, and there were visits to the mall to see Santa himself. Sometimes Santa even brought them exactly what they wanted.

It’s been 20 years since that Christmas and I am starting to wonder if there is a Santa Claus. It is our Federal Government, and this Santa gives the gift that lasts all year.

“If you take the government to be Santa Claus,” says economist Robert Higgs, “you naturally want every day to be Christmas; and the bigger the Santa, the bigger his sack of goodies.”

That sack is certainly getting bountiful. Today the Federal Government is not only the nation’s largest creditor, debtor, lender, employer, consumer and contractor; it is also Santa Claus to tens of millions of Americans.

According to the Brookings Institution and the Urban Institute, roughly 47 percent of Americans either pay no tax or a negative tax (Washington sends money to some people every year through such programs as the Earned Income Tax Credit).

The Federal Government has a long list and lately it hasn’t bothered checking it twice. Since October of 2008 the Federal Government has committed $700 billion and already spent $420 billion through the Emergency Economic Stabilization Act. The Feds have also set aside another $400 billion in separate bailouts to Fannie Mae and Freddie Mac.

For companies like General Motors (GM) and AIG, which have been gifted $50.4 billion and $69.8 billion respectively, there really is a Santa Claus.

If you want to check on all the goodies that Washington has given, there is a detailed list you can see here.

Best of all, Santa wants to see all of his gifts given. On Dec. 8, President Obama unveiled plans to use some of the $200 billion in lower-than-expected spending on troubled bank assets as a fiscal stimulus. Obama claimed his proposal is aimed at alleviating the “continued human tragedy” of unemployment.

Obama said he wants to create “the greatest number of jobs while generating the greatest value for our economy.” And just like Santa, Obama is leaving the price tag off.

What we do know is that the President is calling for an extension of unemployment and health insurance benefits for the more than 15 million out-of-work Americans. According to Obama, boosting jobs—through more government spending—is the best way to tackle the deficit. That kind of deductive reasoning is every bit as magical as Santa Claus.

The list seems endless. Forty billion dollars needed in Afghanistan? Done! One trillion dollars needed for Obamacare? The Democrats are working on that. Meanwhile there is even $1.1 billion for a new agency to protect consumers. And the Greens can count on a stocking-stuffer delivered fresh from Copenhagen.

Bad Santa

There is just one problem. Santa is broke. The budget deficit is a runaway sleigh. For the year ending in September it hit a stunning $1.4 trillion. If that weren’t bad enough, the Congressional Budget Office forecasts a cumulative $9 trillion deficit over the coming decade. When I started in this business in the early 1980s some were issuing dire warnings over Reagan pushing federal debt above the $1 trillion mark. This Christmas it is $12 trillion and climbing.

“No single year’s deficit is any particular danger,” says the Dec. 8 Motley Fool, “but their accumulation quickly becomes lethal. Piling up endless sums of debt works until it doesn’t, at which time a vengeful flock of chickens comes home to roost. Those needing proof can ask Dubai, or simply refer to the recent performance of the U.S. dollar.”

In fact there may be one heck of a Christmas hangover. Moody’s is looking at the debt of both the U.S. and U.K. and might downgrade it from “Triple-A” status.

According to The Wall Street Journal, “Moody’s released the report as part of an effort, spurred by investor demand, to examine the creditworthiness of the world’s most highly rated countries.”

That’s very bad news for Treasury investors. And in the end it may mean the end of Santa Claus. Foreigners hold $3.5 trillion in Treasury debt. If they start unloading even a fraction of this debt the U.S. dollar will crash and the price of gold will soar.

So let me leave you with this Christmas wish; that you buy you and your loved ones some gold. Unlike Santa Claus, it will always be there for you.

Yours for real wealth, good health and, Season’s Greetings,

John Myers
Myers’ Energy and Gold Report

China’s Century: The Impending Threat to America and the Dollar

“India conquered and dominated China culturally for 20 centuries without ever having to send a single soldier across her border”—Hu Shih, 20th Century scholar.

We are a little more than two weeks away from the second decade of the 21st century. More and more it is beginning to look like China’s century.

It’s been 60 years since the Communists seized power. According to Fareed Zakaria, the host of CNN’s Fareed Zakaria’s GPS, “Mao Zedong dragged the country through a series of catastrophic convulsions that destroyed its economic, technological and intellectual capital.”

But in December 1978 Mao’s successor, Deng Xiaoping, gave his famous cat speech which marked the fulcrum upon which the giant nation turned. At a Communist Party meeting he urged economic development over ideology. “It doesn’t matter if it is a black cat or a white cat,” said Deng. “As long as it can catch mice, it is a good cat.”

The question three decades later is what exactly is the Chinese cat hunting? Is it cooperation with the United States and the continued development of the global economy, or is it the relentless pursuit of global power and resource wealth? All the evidence is not yet in, but what we do know seems to indicate the latter with all its chilling ramifications.

But any discussion of China has to be first and foremost about its incredible economy, for the nation has risen towards superpower status in such little time. It is an economy that has doubled every eight years for the past three decades!

Just consider the following:

  • China has foreign exchange reserves totaling almost $2.2 trillion, double the next largest holder, Japan.
  • The number of cars driven in China doubles every three years.
  • China is the world’s largest producer of coal, steel and cement.
  • Twenty of the world’s fastest growing cities are all in China.
  • China manufactures two-thirds of all the world’s photocopiers, microwave ovens, DVD players and shoes.
  • Starbucks predicts that sometime next year it will have more cafes in China than in the U.S.
  • China is the world’s second largest defense spender (behind the USA).

It’s the final item that reveals the claws in China’s carefully crafted Panda Bear self-portrait.

A 2006 U.S. Department of Defense assessment of China was chilling. According to that report the Pentagon viewed China as the next big military threat to the U.S. “There are some real concerns about China’s military modernization,” said Adam Segal, senior fellow for China studies at the Council on Foreign Relations.

Then in 2009 a report from the Council on Foreign Relations said that China has been steadily building up its strategic and conventional capabilities since the 1990s.

According to U.S. defense experts, in 1990 China had a “bare-bones” military: basic capabilities, but nothing sophisticated or top-of-the-line. But two decades of double-digit spending increases have completely changed that picture.

The Pentagon estimates China’s total military spending for 2007 to be between $97 billion and $139 billion, as compared to $52 billion reported by China.

According to the Council on Foreign Relations most of that spending has gone to building a sophisticated, modern military: a large, increasingly capable fleet, an air force stocked with Russian warplanes, and technical strides which have improved China’s ballistic missile arsenal, as well as satellite surveillance, radar and interception capabilities.

“(U.S.) Hawks insist that the Chinese are seeking to drive the U.S. military out of the Pacific, and make it Beijing’s lake rather than what it has been for decades, an American pond,” said Time Magazine in an April 2009 issue.

China is constructing a nuclear aircraft carrier with a lethal and global reach to support its growing fleet of technologically advanced nuclear submarines.

Why is Beijing arming itself to the teeth? Perhaps for global dominance. Perhaps just for the natural resources it needs to sustain its growth: Core among them being oil.

This year Asia will have consumed about 50 percent of Middle East exported oil. China understands it might have to count on its military to lock-in future supplies.

That could mean another arms race or worse. That is something the U.S. can ill afford.

Another Golden Empire
China is also arming itself with gold.

According to the China Gold Association, Chinese demand for gold could total more than 16 million ounces this year, up from 12.9 million ounces in 2008.

China has also become the world’s largest gold producer, having surpassed South Africa in 2007.

“China is likely to become the number-one supplier and consumer of gold this year,” said Rozanna Wozniak, investment research manager at the World Gold Council.

On Nov. 31, China’s Economic Information Daily published remarks by a senior Chinese official indicating that Dubai’s debt crisis could be a good opportunity for China to purchase gold and oil assets.

Ji Xiaonan (Chairman of the Supervisory Committee overseeing large state-owned enterprises) was quoted as saying that the Dubai debt crisis "could give China an opportunity to put some of its foreign exchange reserves into gold or oil."

Just two weeks ago Ji Xiaonan said that China should increase the amount of gold it holds in reserves to reduce potential losses from a depreciating dollar. Currently China has relatively small gold reserves, just 1,200 metric tons or about 7 percent of the world total.

But Ji Xiaonan wants to change that. He wants China gold reserves to reach 6,000 metric tons within three-to-five years and possibly to 10,000 metric tons in eight to 10 years. (Ten thousand metric tons represents 350 million ounces of gold or about four years of global gold production.)

Money is Not a Problem
China has a lot of money to invest in gold and other real assets. It has foreign currency holdings of $2 trillion which include $800 billion in U.S. Treasury debt. With that kind of dollar exposure it is little wonder that China wants to increase its gold reserves 10-fold.

This will be an unprecedented national build-up of official gold reserves (in fact for the past 50 years most nations have been net sellers of gold). China’s radical increase in its bullion reserves is likely a harbinger for much higher prices for the Midas metal. How high is anyone’s guess, but I wouldn’t be surprised to see gold above $1,500 by next spring.

Action to take: Don’t be surprised by a correction in the price of gold going into January. I think that over the very short-term the bull is tired. Over the long-term the bull market in gold is very much alive. I recommend you use any correction to add to your physical gold holdings in anticipation of considerably higher prices in 2010.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Shocking Proof… Global Warming is a Hoax

(Part three of a three-part series on energy.)

“We’re being asked to wage trillions of dollars and substantially curtail freedom on climate models that are imperfect and unproven. (With) the consensus far from being as solid as they say it is, and the debate as over as they say it is.”
George F. Will

In President Nixon’s day, dirty tricksters did things the old fashioned way—with black gloves and flashlights. The result was Watergate, the eventual legacy of which may be that anything corrupt contains a word ending with “gate.”

The latest incident is Climategate. It began about three weeks ago when a computer hacker broke through a server used by the Climatic Research Unit at the University of East Anglia in England.

Unlike Watergate, which started a grand conspiracy, last month’s hacker-heist may unravel one. It appears as if the stolen e-mails reveal collusion by climate scientists to withhold scientific information. Some scientists don’t want the public to know the shocking truth—that the climate is NOT getting warmer.

The hacked e-mails from men and women of science include discussions on how to silence climate change skeptics. The e-mails also discussed how to censure scientists who dare to have contrary views on global warming and included derogatory remarks about climate skeptics. Finally, the e-mails discuss how to prevent actual data from being revealed under the Freedom of Information Act—an action that seems to have little to do with freedom and less to do with information.

For example, after learning that the scientific journal Climate Research had suggested that perhaps the world isn’t burning up, Penn State professor Michael Mann wrote in an e-mail: "I think we have to stop considering Climate Research as a legitimate peer-reviewed journal. Perhaps we should encourage our colleagues in the climate research community to no longer submit to, or cite papers in this journal."

Besides a seeming tendency to write people off in true Stalinist fashion, Mann has made a living writing about the dangers of global warming. He helped build the “hockey stick graph” shown below.

“Remember that this is not an academic exercise,” wrote The Atlantic. “We contemplate outlays of trillions of dollars to fix this supposed problem. Do the scientists involved deserve to be trusted? No. These people are willing to subvert the very methods—notably, peer review—that underwrite the integrity of their discipline.”

But the story gets even better. At the end of November the University of East Anglia admitted losing raw temperature data on which their predictions of global warming are based.

It means that nobody can check basic calculations that supposedly show a long-term rise in temperature for the past 130 years.

With Watergate Nixon gave the old, “The dog ate my homework” excuse. (Actually Nixon’s secretary Rose Mary Woods said she accidentally erased the recording of the president’s meeting with H.R. Haldeman that took place three days after the break-in.)

With Climategate, the University of East Anglia is saying the computer ate the data.

According to the University’s Website: “We do not hold the original raw data but only the value-added (quality controlled and homogenized) data.”

Even if you accept that the University isn’t cooking the books, the environmentalists have a problem. They claim that world temperatures have risen one degree Fahrenheit in the past century. However the starting point—around 1880—was colder than average. Furthermore, the timing of temperature changes does not fit the theory of global warming. Most of the rise came before 1940, or before greenhouse gases were significant.

A Bright Future for this Old Resource

In the end I think global warming will turn out to be more myth than fact. If that’s the case then a lot of alternative energy investors will be tempted to jump-off the windmills they invested in. And as it is demonstrated that fossil fuels are not going to flood the world and kill off all the polar bears, core energy investors should do spectacularly well. In fact, the biggest profits might be in the oldest resource—coal.

Coal-fired power plants account for half of the U.S. electricity supply. More importantly, coal is also America’s most abundant natural resource.

We have seen in the first two parts of this series that we live in a dangerous age—a period where renewable energy technologies have not yet been realized and a time when America is becoming dangerously dependent on Arab oil.

This third part to the series focuses on a tangible solution—coal. In all of its abundance and its utility, coal will power America deep into the 21st Century.

Just last month The Wall Street Journal ran an article titled: Coal Warriors: Why U.S. Coal Producers Could Still Have a Bright Future.

The WSJ stated: “Coal is and will remain a huge part of the electricity mix in the U.S., despite—or perhaps because of—congressional action on energy and the climate.”

The United States — the Saudi Arabia of Coal

The heady days of petroleum in America are far behind us. Over the course of the past 30 years America’s oil imports have surged threefold—from 2.6 million barrels per day (mb/d) to 7.6 mb/d.

The fundamental fact is that the United States and the world are hungry for energy. Consider the following:

  • U.S. demand for all types of energy is expected to increase by 31 percent within 25 years.
  • Electricity demand in the U.S. will grow by at least 40 percent by 2032.

New power generation equal to nearly 300 1,000 megawatt power plants will be needed to meet electricity demand by 2030; as many as half of them will be coal.

Luckily, coal is the one resource the United States has plenty of. The U.S. has the largest coal reserves in the world, just short of 250 billion tons. That is almost the combined reserves of the next two largest reserve countries China and Russia.

In fact, the U.S. is one of the world’s leading exporters of coal, and is expected to ship 65 million tons this year. That total will grow as nations like India and China ramp up their industrial revolutions with King Coal.

Future world demand for electricity is expected to be so strong that Exxon-Mobil is planning on spending a record $25 billion to $30 billion annually over the next five years finding new hydrocarbon deposits.

“The global economy is experiencing a downturn but at Exxon-Mobil we are focused on the long-term,” said Rex Tillerson, the company’s chairman and CEO.

Power up Your Portfolio with Arch Coal

Any conversation about meeting future energy needs must include coal. Even the “greens” realize this. According to left-leaning CNET News, “Coal is a major source of air pollution, mining accidents, and environmental damage. Unfortunately, we can’t live without it.”

The International Energy Agency (IEA) agrees. In its World Energy Outlook, the IEA says global energy demand will surge by 45 percent between now and 2030. The number one resource to meet this demand will be coal.

That makes investing in coal a smart choice, especially when you consider how depressed coal company stock prices have been over the past 15 months.

My favorite blue-chip coal company is Arch Coal Inc (ACI, NYSE).

Arch mines and sells steam and metallurgical coal from surface and underground mines to power plants, steel mills and industrial facilities in the United States. Arch operates 20 active mines and owns some 2.8 billion tons of proven and probable recoverable reserves.

As you can see from this graph, Arch is selling for about $20 or just one-quarter of its 2008 high. The recession and the growing fears over “green” politics, starting inside the White House, make Arch an incredible bargain. Meanwhile the world is slowly learning the truth—that global warming is a hoax perpetrated by the left-wing establishment and a liberal media.

And if that was not enough, the Federal Reserve and the Obama administration continue to expand the U.S. money supply at a shocking and unprecedented rate. You can read more details on this by going to my Nov. 11 column, Obama’s Bear Market: How to Survive and Prosper.

This surge of new money and continued easy credit is certain to lead to excessive inflation and continued dollar devaluation.

Taken as a whole, these factors could result in the doubling of Arch Coal’s price over the next 18 months. That’s something you don’t often get with a large market cap stock. Yet I think we are going to see with Arch.

Action to take: I urge you to buy Arch Coal (ACI, NYSE) at market. Call you stockbroker today.

Yours for real wealth and good health

John Myers
Myers’ Energy and Gold Report

The White Lies About Black Gold

(Part two of a three-part series on energy. Part three will appear Dec. 9)                

“You lie!”                                           
Rep. Joe Wilson during President Barack Obama’s healthcare 2009 speech

It’s one year after Barack Obama’s presidential victory and the winds of winter are beginning to gale. But don’t expect him to give Jimmy Carter-like sweater-clad chats from a chilly Oval Office.

Carter—the first president to warn us about Arab oil dependency three decades ago—is irrelevant to today’s Democrats. Rather than engage the nation about our critical dependence on Middle East oil, Obama and the Democrats have either ignored our energy problems, or worse—outright lied about them.

At the August 2008 Democratic National Convention Obama declared: “I’ll invest 150 billion dollars over the next decade in renewable energy—an investment that will lead to new industries and 5 million new jobs that pay well and can’t ever be outsourced.”

Apparently Obama didn’t feel as “green” after winning the election. Just one day after he reiterated his commitment to renewable fuels in his State of the Union address in January 2009, we were told that the president’s budget cuts would force layoffs at the National Renewable Energy Laboratory.

Then there is Obama’s proclamation made on Oct. 15, 2008, during the presidential debates:

“In 10 years,” said candidate Obama, “we can reduce our dependence so that we no longer have to import oil from the Middle East or Venezuela.”

It’s Called Peak Oil Mr. President
Such comments reveal a president that is either naïve about the energy situation, or is concerned with what is politically expedient. I can’t decide which.

What I do know is that what he says about oil is impossible. And I should know; I have been around petroleum all my life.

My dad was a geologist and oil trader when some of the biggest petro fields in world were struck in the 1950s and 1960s. He became the founder and publisher of OilWeek, a weekly petroleum magazine that counted the Saudi Oil Ministry among its subscribers and which is still published to this day in Calgary, Canada.

I studied geology during the first oil crisis of the 1970s. I graduated from the University of Calgary just as prices were cresting at $36 per barrel—more than 10 times higher than where they had been at the beginning of the decade.

For nearly 30 years I’ve been covering the oil markets and writing about energy. I am certainly not the smartest fellow in and around oil and gas. But I’ve had the good fortune to meet some of the men and women who are.

All would tell you the one truth that I know—that the United States of America is critically dependent on Arab oil.

It is called Peak Oil, and for the U.S. that happened 40 years ago.

Today the U.S. is pumping just 4.9 million barrels of oil per day (mb/d), or just a little more than half of the oil pumped in 1970. In fact the U.S. hasn’t pumped such little oil since the 1940s when Truman was President and our population was half of what it is today.

It is a situation that is going to only get worse as America’s Big Three crude producers—Texas, California and Alaska—are showing major declines.

Nearly half of our domestic crude production comes from these three states. Yet Texas’ oil output has fallen by 57 percent since 1981. California delivers just a little more than half of what it was pumping in 1985 and Alaska, once America’s oil oasis, has had production decline by a whopping two-thirds in the past 20 years.

Why the Bakken Formation is Baloney
One final note about domestic oil production—every time I write about it, I get comments about the Bakken formation.

The Bakken formation is in North Dakota and Montana. A lot of people wanting to sell newsletters and/or penny oil stocks have claimed incredible numbers for the region; some say it holds billions of barrels of oil, others say hundreds of billions of barrels of oil. One promoter even wrote that it had 2 trillion barrels of oil! If true that would mean there is more than twice as much oil below North Dakota rock than what remains in the rest of the world.

The best undertaking of the region was done by the Pittman/Price/LeFever study which estimated the volume of oil at 200 billion to 400 billion barrels. But here is the rub: because of the lower permeability and lower porosity of the formations, only 1 percent of this total is likely to be recovered at an effective cost. In other words we are talking at best 4 billion barrels—about enough oil to keep the U.S. going for five months.

The geology in North Dakota means that the oil is not pooled in elephant fields like Prudhoe Bay in Alaska, Ghawar in Saudi Arabia or Cantarell in Mexico.

Furthermore, meaningful production from the Bakken formation won’t take place for more than a decade. (That’s a similar timeline to bringing new Alaskan oil to market).

According to The Oil Drum, at some point we might have production of 225,000 barrels per day from the Bakken formation, “Which will have only a minor effect on U.S. production or imports.”

To read a detailed geologic analysis of the Bakken formation, go to: http://www.theoildrum.com/node/3868.

Digging Instead of Drilling
So while bragging up the Bakken may sell newsletters, it won’t save America from an impending oil crisis. And make no mistake, one is on the way.

We have some stopgap measures, including opening up new areas as well as horizontal drilling and offshore drilling. But oil magnate T. Boone Pickens estimates that if every possible new technology worked and if drilling restrictions were completely removed, the U.S. would still, “Only squeeze another 2 mb/d in added (annual) production.”

As it stands right now the U.S. is importing more than 13 million barrels of oil every day. That total is going to grow and within the next few years one-third of all our oil may come from the Middle East.

Meanwhile—as we discussed in Clean Energy is Pure Fantasy—alternative energy solutions are decades away from fruition.

However there is a real and reliable energy source just a few hundred miles north of Calgary. It is the oil sands of Alberta and Saskatchewan and it is already a major supplier of crude oil to the U.S.

Over the coming decade its importance will only increase and investors that take a stake in it will continue to earn big profits.

Canada is already the largest supplier of oil to the U.S., exporting 2 mb/d. About 1.3 mb/d come from oil sands. Yet in the next 10 years oil sands production will soar to 3.4 mb/d.

Given the rapid decline of Mexican and Alaskan oil fields over that span, Canada will become America’s energy lynchpin, providing it with 4.2 mb/d, or more oil than what the U.S. will be pumping for itself.
 
Invest in Suncor Energy
I first toured Suncor Energy (NYSE, SU, $36.30) nine years ago and as the editor of Outstanding Investments. I urged my subscribers to buy this stock in April 2001 for $12.69 per share (see Suncor price chart below).

But the story of Suncor dates back further than 2001 and will extend well beyond 2010.

It is Canada’s original oil sands developer, having produced the first barrel of crude oil from the Athabasca oil sands in Alberta in 1967.

Today Suncor is the world’s second largest producer of oil sands crude (after Syncrude Canada Ltd.) and is the only company to currently use both mining and in-situ resource technologies.

A fully integrated company, Suncor upgrades the oil from the oil sands to the level of conventional crude at its upstream facilities and then ships the crude to the company’s refineries east to Ontario and south to Colorado.

In August 2009, Suncor merged with Petro-Canada. The move made it Canada’s largest energy company and the fifth largest North American energy company based on market capitalization (the price of the stock times the number of shares trading, which in Suncor’s case is $57 billion).

Action to Take: Buy Suncor at market. The weakening U.S. dollar and supply constraints on oil will push crude prices higher. Suncor stock will continue to climb alongside rising petroleum prices.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

P.S.—Next time, in the conclusion of this three-part series (which will appear Dec. 9), I will look at one real solution to America’s energy crisis, as well as a down-to-earth stock that will heat up your portfolio.

Clean Energy is Pure Fantasy

(Part one of a three-part series on energy)

Barack Obama must be thrilled with fellow Nobel Prize winner and former Vice President Al Gore and his just-published book, Our Choice, A Plan to Solve the Climate Crisis. In it, Gore sings the liberal refrain that big government can save the world.

Gore, who is making the rounds touting his book this month, argues there are economic as well as political reasons to be green.

"There is a common thread running through the discussion of climate, (national) security, and the economic crisis, and that is our ridiculous dependence on foreign oil and coal," Gore said.

In other words, clean energy will bring us peace, prosperity and respite from that “End of Days” scenario known as global warming.

Gore thinks we can have peace because America will no longer be dependent on Middle East oil. As a result we can pull out of the region lock, stock and no barrel.

That will save hundreds of billions of dollars being spent on Arab oil. Best yet, that money can be invested into clean technologies—a super-grid to capture and transport wind and solar power.

Gore’s vision is for America to become a world leader in clean technology and export it around the world, correcting one last annoyance—our staggering trade deficit.

Gore’s utopia is green. Soon we can sleep easy in our lavish solar homes with our electric cars plugged in.

If it sounds too good to be true there is a reason for that—it is.

Jousting at Windmills
If you have ever been to Palm Springs, Calif., and driven west you can’t help but notice the forest of wind turbines that pockmark the desert landscape.

As we drove along Interstate-10 years ago my wife Angela said, “How come the windmills aren’t turning?”

“No wind,” I said.                       

That sums up the problem with wind power, a system that currently produces about 1 percent of America’s energy needs.

When the wind blows you get electricity but when it doesn’t blow you get nothing. That is because it is impossible with current technology to store alternating current. Direct current wind power can’t be stored in batteries. As a result consumers need redundant power plants.

Then there is a question of cost and space.

Last year in England, former Industry Secretary and current Labour MP John Hutton announced the British government should build a huge array of giant windmills to meet the country’s future energy needs.

The Energy Tribune said Hutton’s plan would literally change the face of Britain. That’s because Hutton wants the government to build 7,000 turbines—or one every half-mile around the entire coast of Britain.

It’s interesting that as much as the greens hate to spoil the environment they embrace wind power. Turbines not only kill tens of thousands of birds but also use up more space per unit of capacity than any other power source. According to the U.S. Department of Energy each wind turbine requires 40 acres.

Physicist Howard Hayden at the University of Connecticut sums up the situation: “Imagine a one-mile swath of wind turbines extending from San Francisco to Los Angeles. That land area would be required to produce as much power around the clock as one large coal, natural gas, or nuclear power station that normally occupies about one square kilometer.”

And wind turbines don‘t come cheap. One commercial 2 megawatt turbine costs about $3 million installed.

According to Senator Lamar Alexander (R-TN), “At a time when America needs large amounts of low-cost reliable power, wind produces puny amounts of high-cost unreliable power. We need lower prices; wind power raises prices.”

The Sun of All Things
My experience with solar power dates back to that time we drove past the motionless windmills. It was the early 1980s and we were buying our first house. The 1970s energy crisis was still lingering and since real estate was cheap in Spokane, Wash., we decided to spend some extra money and buy a brand new solar home.

It was a nice enough berm house if you didn’t mind dirt piled up against the sides and the back of it. As for the solar panels, they collected energy to beat the band in the summer, which was too bad since we didn’t have an air conditioner. As for its use in the winter, we were in the rainy Pacific Northwest so our solar panels were practically useless.

Nearly 30 years later solar power meets about 1 percent of America’s electricity needs. And solar is still an incredibly costly proposition. It costs up to $80,000 to put in solar technology that would meet the electrical demands of a modest home.

Green Econometrics did the math. In a 2007 article they calculated that solar energy is 10 to 20 times more expensive than fossil fuels for power generation (see graph below). You can read the story at: http://greenecon.net/understanding-the-cost-of-solar-energy/energy_economics.html.


Beam Me Up Scotty
To better understand how ridiculous the prospect of solar energy is, consider a press release sent out by Pacific Gas & Electric Corporation (PG&E) (NYSE: PCG) this past spring.

PG&E announced that it had requested approval from the California Public Utilities Commission to enter into a power purchase agreement with Solaren Corp. in Southern California.

Under the plan Solaren would deploy a solar array into space—yes space—to beam an average of 850 gigawatt hours (GWh) for the first year of the term, and 1,700 GWh per year over the remaining term to PG&E customers.

According to Solaren it has even had talks with Lockheed-Martin and Boeing to build the solar plant and the rockets needed to send it into orbit.

All of which prompted Energy & Capital to write: “The press has gushed about the ‘next frontier’ of solar power, which would collect power ‘24 hours a day’ from the far brighter solar radiation available above earth’s atmosphere from a low-orbit. The energy would be transmitted to a receiver based in Fresno, Calif.”

Meanwhile, it was revealed that the Pentagon had done its own study on space-based solar power. Their report said that a $10 billion program could create a measly 10-megawatt pilot satellite.
 
The scale of the PG&E project is out of this world. Their satellite would have to be hundreds of times bigger than the International Space Station, which can barely sustain itself with solar energy.

Just one final detail: nobody—not even a Nobel Prize winner—has yet figured out a technology that will actually transfer the sun’s rays.

The fundamental truth is that we will, for decades longer, continue to rely on fossil fuels.

Next week, in Part Two of this three-part series, I will touch on more earthly problems, including America’s all too real oil crisis and one rock solid industry that will help ease America’s energy pains and earn you gusher-type profits.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Obama’s Bear Market: How to Survive and Prosper

They say you can just buy just about anything, even love. But the truth is you can only rent a bull market and the lease on this one is about to run out.

After devastating losses that pushed the Dow Jones Industrial Average to 6,440 in early 2009, the Dow broke above 10,000 last month for the first time in 53 weeks. All thanks to President Obama and his bagmen at the Federal Reserve.

You see, President Obama and Federal Reserve Chairman Ben Bernanke have already injected more than $1 trillion in new money.

Part of this has been in the form of bank bailouts. More has been given to Detroit automakers. And finally, Washington has inserted a whopping $850 billion directly into the U.S. banking system. It is this final act that will wreak the greatest havoc on the U.S. stock and bond markets.

When the credit crisis hit last year the Fed began “running the printing presses.” We are talking about the creation of hundreds of billions of dollars, so presses aren’t really running. Instead, the Fed has created all this money with the touch of a key-stroke. Soon this mountain of money will spill over into the economy and the markets.

The graph above shows the Fed’s unprecedented creation of U.S. bank reserves.

In his Nov. 2, column, Robert Murphy of PrisonPlanet.com explained: “The United States has a ‘fractional reserve’ banking system, meaning that if you added up all of the checking account balances for the customers of a given bank, the total amount of deposits would far exceed the amount of cash reserves in the vaults of the bank.”

As a result, said Murphy, all this fresh Fed money will soon be lent out at a multiple. A conservative estimate is five times the amount injected. That means that the $850 billion in new bank reserves will be transformed into more than $4 trillion in new money. That would take M1 money supply from $1.7 trillion to $6 trillion in just the next few years!

To read all of Murphy’s story, click here.

 

Even before the avalanche of new money, M1 has risen 50 percent since January 2001 (see graph M1 Money Supply).

With all this fresh cash on the bank’s books, M1 could easily double to more than $3 trillion in the next two years. That would make M1 money supply almost 10 times higher than it was when Ronald Reagan took office.

We haven’t seen this kind of excess monetary growth since the stagflationary 1970s. It was bad for stocks and bonds then and it will be just as bad for them today.

A Short History of Stagflation
Between 1970 and 1981, M2 money supply tripled. A record amount of liquidity was being injected into the economy by the Fed. But all this money wasn’t helping an economy that was just limping along.

From the beginning of 1971 to the end of 1979 the gross domestic product (GDP) rose by just one-third—from $3.9 trillion to $5.2 trillion (in constant dollars).

As the amount of money in the economy vastly exceeded the goods and services being produced, inflation was inevitable.

The consumer price index for the 1970s rose by a staggering 6.5 percent each year. By 1980 a 1970-dollar that had been stuffed in the mattress would buy you just 52 cents worth of goods and services. It marked the end of dollar stability and the post-war economic boom that fueled a bull market in stocks.

In January 1950, the Dow Jones Industrial Average was under 200. In January 1966, it breached 1,000 for the first time. Over the next few years, the Dow moved sideways, twice testing, but never again breaking above the magic 1,000 point level.

Stocks fell into a funk. Money supplied by the Fed was not producing real gains and the stock market reflected this.

In April 1980, the Dow was trading at 759. That might not seem too bad compared to its 1966 apex, but factor in inflation and the 1980 Dow, measured in 1966 terms, was really trading at $329. In real terms the Dow had lost two-thirds of its value in 14 years.

Bond investors also did poorly. In the late 1970s prices on 30-year Treasury bonds fell more than 25 percent as the yields-to-maturity on the bellwether 30-year Treasury bond climbed from a rate of 7.75 percent in 1977 to 14.7 percent in 1981.

The end result was a massive renunciation of paper as investors began switching out of dollars and buying real assets.

Yet while many Americans lost their savings in Big Board stocks and bonds, some investors made incredible gains in precious metals.

Pitfalls and Profits
I first began investing in gold when I was just a teenager and it was selling for $35 per ounce. I kept that gold until it topped out at $840 and corrected back to the $650 per ounce range. So even though I didn’t get out at the top, I did get an 18-fold profit.

If that sounds like ancient history and something that can’t be repeated, don’t be so sure. Nine years ago last month I started writing Outstanding Investments. I told subscribers then to buy gold, silver and platinum as well as precious metal equities. At the time gold was selling for less than $280 per ounce.

Today bullion is trading back over $1,050 per ounce and I have been bullish on the precious metals throughout the decade. I still believe that bullion prices could very well double in the next two to three years. Given the excess of Obamabucks, I can see gold trading for more than $2,000 per ounce by the end of 2012.

And don’t be surprised to see silver rising to $80 per ounce (versus $17 today) and platinum to more than $3,000 per ounce.

Action to Take

It is imperative that you get out of Big Board stocks and all long-term debt instruments including Treasury notes and bonds. Look for a major correction to come in the Dow, the S&P and the NASDAQ in early 2010. I wouldn’t be surprised to see the markets hit new lows. At the same time, bonds are just as susceptible to huge losses as I expect interest rates to go up. I urge you put your money into cash in the form of three-month T-bills.

A T-bill is simply a short-term debt obligation backed by the full faith and credit of the U.S. government. The key to a bill is that it’s very short-term (and pays an incredibly small interest return). It has a maturity of less than one year and is sold in denominations of $1,000. You can buy maturities of one month, three months or six months. I like the three-months T-bills because you are not locked in very long but you don’t have to constantly roll them over.

Three Ways to Buy T-Bills

  1. Go to your local bank and ask to buy Treasury bills. This may be the easiest option because you already make periodic trips to your bank.
  2. Call your investment broker. Tell him or her that you want to purchase three-month T-bills and roll them overuntil further instructions.
  3. Buy Treasury bills directly from Uncle Sam. The Treasury Direct Website will guide you through this process and give you lots of information as well. You can access that site at: www.treasurydirect.gov.

I also urge you to buy some physical gold. If you are just starting out, I suggest you buy 1-ounce U.S. American Eagle coins as well as 1-ounce Canadian Maple Leaf and South African Krugerrand coins.

—John Myers
Myers’ Energy and Gold Report

PS—Next week I will be writing the first of a two-part series on energy. If you think wind power is the answer to tomorrow’s problems you will want to read Part I. It will include why fanciful presumptions by the Obama administration are, at best, ignorance, and at worst, the purposeful deceit of the American public. In Part II, I will tell you the core truth about America’s dwindling petroleum reserves and I will give you a new energy stock pick that should be in your portfolio.

Let’s Nuke the Environmentalists

Greenpeace is running rampant across Alberta’s oil sands. In the past few weeks, 37 activists have been arrested in a spate of incidents targeting North America’s most important energy resource.

The most recent occurred on Oct. 5 when 19 activists stormed an upgrader in Fort Saskatchewan, Alberta. They tied themselves to equipment which is used to transform heavy oil into gasoline.

The protesters unfurled banners reading “Climate Crime” and “Climate SOS” to draw attention to an industry they say is killing the planet.

In September, two-dozen Greenpeace commandoes kayaked down the Athabasca River to intercept a Suncor bridge where conveyor belts move bitumen into an oil sands upgrader.

But my favorite is the protestors that drove a convoy of pickup trucks into the heart of Shell Oil’s massive open pit mine, halting production.

They came from Edmonton to Fort McMurray, Alberta, a 360-mile round trip. The irony of burning all that gasoline to shut down a facility that helps to provide affordable gasoline was apparently lost on them.

Greenpeace says that it is putting a spotlight on the “climate crimes of the tar sands.”

Meanwhile, trouble is also brewing west of the oil sands in the Peace River region, an area that encompasses the Alberta and British Columbia border. It is here that an eco-terrorist is on the loose. His target is EnCana Corp (NYSE: ECA), which is working the vast unconventional pools of sour gas that lay a mile beneath the countryside.

In the past year he has blown up six sour gas pipelines. EnCana is a preeminent natural gas company in North America. Yet the company is so afraid that the bomber is going to kill himself or somebody else they have posted an Osama bin Laden-like bounty of $1 million for information leading to a conviction. The newspapers are calling it the largest reward in Canadian history.

In a letter to the Dawson Creek Daily News the bomber wrote: “Return the land to what it was before you came every last bit of it… before things get a lot worse for you and your terrorist pals in the oil and gas business.”

The badly handwritten letter sent July 15 insists EnCana cease operations in the area. The bomber also promised to suspend attacks during a three-month grace period so “we can all take a summer vacation.”

All considered the oil patch is lucky to have a lazy terrorist on its hands.

From Elephant Fields to Real Elephants

I can already picture the hate mail, “Myers, not everyone concerned about the environment is a protestor or a bomber!”

True, but a lot of Greens just don’t get it. Let me give you an example.

In the early 90s I went to South Africa to report on the gold mines. There, my Uncle Richard and I joined a tour group. Our guide was an English conservationist.

He told our table how the South African government sold elephant hunting licenses for $20,000 a pop. Traveling with game wardens, hunters gladly paid this fee to stalk single bull elephants.

This, said our tour guide, allowed the South African government to cull the herds, thus preventing mass starvation of the animals. All of the funds were put back into the game parks allowing for their future expansion and the eventual growth of the elephant population.

For one woman in our group, this was too much. Right there in a Johannesburg restaurant she came unhinged. “You sell elephant lives for money!”

Sometimes I can’t help myself and this was one of those times.

I turned to my uncle and said, “What do you think Richard?”

I then explained that in 1957 my father Vern and my Uncle Richard had gone on safari and had in fact bagged an elephant.

I went on to defend Richard with the truth—saying that, in fact, elephants have always been endangered by poachers, not hunters; that licensed hunting had in fact created a windfall for conservation throughout southern Africa.

But there was no convincing the lady from Toronto. Once she knew that Richard had killed an elephant he might as well have murdered a baby. She told him that in her book, killing an elephant was worse than killing a person.

I knew then and there that some environmentalists were downright crazy.

Any lingering doubts were erased by a 1990s PBS program called, Can the Elephants be Saved? It should have been titled, Are the Environmentalists Crazy?

The program NOVA focused on Zimbabwe’s wildlife management, one of the most effective on the continent. In the decades leading up to the 1990s the nation’s elephant herd had doubled to more than 60,000 animals, twice what the Parks Department considered the optimum size for the country. Where there were just 3,000 elephants in the Hwange National Park in 1930, there were more than 20,000 by 1990.

To prevent the Park’s destruction and the mass starvation of thousands of elephants, Zimbabwe game officials would accompany high stake hunters who culled a limited number of elephants with high caliber rifles at short distances. For the Park Service it was a matter of the greater good since elephants could not be moved safely to other game parks.

Every elephant culled was immediately skinned and butchered. A full grown elephant can provide 2,000 pounds of prime meat. Dried, this lifesaving resource remains edible for up to one year and helps sustain some poor black tribes on the fringes of the game parks.

This utilization of elephants not only preserved the park but also the long-term existence of elephants and other game. It also contributed millions of dollars to the Zimbabwe economy—money that was used to expand the national parks, build needed infrastructure and improve the standard of living for the Zimbabwe people.

All for the good, correct? Not according to Cynthia Moss, then and still the head of the Amboseli Elephant Research Project in Kenya.

Moss told NOVA that shooting just one elephant, for whatever reason, is fundamentally wrong.

“I don’t call that conservation. I would rather see no elephants than elephants being culled, and that’s an extreme position I’ve come to hold, just because I think it is morally unjustified to kill elephants,” Moss said.

If that’s not an ideologue what is? I can picture Hitler slamming his fist upon a desk and declaring: “If Germany can’t win the war, it doesn’t deserve to survive!”

In case you think Moss’ outlook has evolved, guess again. In fact you can visit her Website at: http://www.elephant.se/cynthia_moss.php. There, she is asked who had the biggest influence on her life. Her answer: Echo.

If you want to know who Echo is you can see her picture at: http://www.elephant.se/database2.php?elephant_id=51.

The Hard Truth about Crude Oil

Greenpeace demonstrates that when it comes to the environment, it’s not just individuals that are off kilter.

Then there is the Environmental Defense Fund (EDF). Earlier this year the EDF proclaimed: “For about a dime a day (per person), we can solve climate change, invest in a clean energy future, and save billions in imported oil.”

Newsweek, no friend to conservatives, had this response in its April 27, 2009, issue: “(If what the EDF says) sounds too good to be true, it’s because it is.”

Newsweek points out that four-fifths of the world’s and America’s energy comes from fossil fuels—oil, coal, natural gas—which are also the largest source of man-made carbon dioxide (CO2), the main greenhouse gas.

This is a fundamental fact that isn’t going to change for generations, regardless of how many people chain themselves to oil sands sites or blow up pipelines.

Moreover, Alberta’s oil sands will remain the key to meeting America’s growing thirst for oil. Canada already supplies the U.S. with 22 percent of its petroleum, the bulk of which comes from Alberta’s oil sands. That share will climb significantly over the next 20 years as oil sands operations expand, Greenpeace be damned.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report